Monday, June 3, 2019
Porters Five Forces Analysis Aids Marketing Essay
Porters fin Forces Analysis Aids grocery storeing EssayIntroductionPorters Five Forces Analysis aids a course in cross checking a competitive environment. It has similarities with other tools for environmental analysis, much(prenominal) as PEST analysis, but is much likely to focus on the single or a stand alone, business enterprise rather than a single product or range of products, earlier Michael E Porter devised the five forces example on that point was a way of think which implied that due to competition the rate of return in an intentness would be constant across all firms and industries, this way of thinking contrasted a subject of studies which has identified that different industries were in fact able to maintain different levels of arrive at which was due to the way a industry was structured. different industries squeeze out vex different levels of profitability (Porter, M (23/04/10). Competitive Strategy Techniques for Analyzing Industries and Competitors)Mich ael E Porter presented a structure that replicates an industry as world influenced by five forces. These five forcers ar barriers to entry, supplier causation, threats of substitutes, buyer power and degree of arguing with in the industry. base on this analysis, a familiarity flock develop a competitive strategy for gaining and sustaining competitive advantages over rival firms and thereby generating above-average return on investments. (Niederhut-Bollmann, C, Theuvsen, L,. (23/04/2010). strategic management in turbulent marketplaces) Porters Five Forces provide a simple framework to analysis an industry structure and view its potential for profitability. It works by looking at the force-out of five important forces that affect competition.RivalryWith reference to economics, competition among companies go away forces over all profits to zero (Iupindia, D. (24/4/10). ledger of Applied Economics), but because there is no- much(prenominal) thing as perfect competition firms in any industry provide continue to attempt to fulfil a competitive advantage over rival companies, to help oneself a company achieve an advantage over its competitors it can use a number of competitive moves such as Changing the prices of its serving or product, Improving product differentiation, using the most appropriate channels of distribution or growing relationships with suppliers. (Porter, Michael E.. (24/4/10). THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY )When classifying the intensity of a companys competition there a number of different unique points which help to spot how competitive that industry is. If there argon a number of large firms in an industry these firms argon competing for the similar customers and resources (Porter, Michael E. (25/4/10). How competitive forces skeletal system strategy). This rivalry incr comforters if the companies in the industry all fall in equal market share.Slow market harvest-festival will also cause an increase in riv alry as firms are forced to compete for limited market share in contrast an industry which is growing rapidly will gather in high revenue and a bigger market share due to the fact that there are so many emerging consumers.Added to the slow market increment and the number of firms in an industry, low product differentiation can also affect the amount of rivalry in an industry a perfect utilization is the Smartphone industry, all the phone are the same and offering the same benefits to the consumer. But by offering or creating a brand identity a company can restrict the amount of rivalry in the industry again a precedent is in the Smartphone industry Apple has been able to create a successful brand which differentiates them from there competitors.When an industry is producing higher profits it entices mod fledgelings into the market this in turn increase the amount of rivalry. At a trustworthy point in the product life cycle an industry will have too many competitors and the i ndustry can become crowed, with all these business producing the same product the market becomes saturated creating a position of too many products and not enough buyersThreat of SubstitutesThe Threat of Substitutes means other products which are in other industries affecting the product which is being produced. If a substitute product is limiting the ability of the industry to raise prices it falls in to the kin of a substitute. For example BHP Billiton is a mining company which extracts minerals from the ground such as iron ore another mining company which extracts oil from the ocean would be a substitute. While the threat of substitute normaly affects an industry via a completive price strategy it can also pose a threat in areas such as technology and resources.Buyer PowerWhen an industry has a strong buyer power it suggests that the consumers have an impact on the companies. These buyers are able to effect prices and dictate to the industries what they want this is prevalent i n industries where there are many suppliers and only one buyer for example in the car manufacturing industry there are many makers of cars and they all need tires but there are only a few companies that make tiers.Supplier PowerIf an industry requires huffy materials such as metal, labor or commodities it creates a relationship with a company that supplies the specific need and want that the industry is looking for. If the supplier are powerful and have a large market share they are able to influence the producing industry a perfect example of this is BHP Billiton. BHP Billiton is able to fail its raw materials such as iron ore to countries such as china at higher price which conquers the company to capture some of the profits which are had by the metal industry.Barriers to Entry new(a) firms entering an industry affect competition Barriers to entry benefit existing companies already operating in an industry becausetheyprotectan established companysrevenues and profits from being whittled away bynew competitors.( J Cramer. (01/05/2010). Barriers To Entry. Available) Barriers can be exploited and use to improve the competitive advantage of the company. These barriers can be caused by the Government who regulate some industries by allowing monopolies for example Telstra who have a monopoly over the telecommunication business, legal patents which are used by companies who have a entrepreneurial idea, having specific assets such as technology which is required to produce a particular product and having cost trenchant economies of scale which is the point where the cost of producing a unit is at a minimum.Porter five forcers can also be used to determine the attractive feature of an industry or market as measured by the long-term return on investment of a average firm which depends largely on the five factors Michael E Porter developed, these factors influence Profitability, The intensity of competition among existing competitors, the existence of potential com petitors who will enter if profits are high, substitute products that will attract customers if prices become high, the bargaining power of the customer and the bargaining power of suppliers (Aaker, D (23/04/10). Strategic Market Management)As BHP Billiton has a lot of financial strength which has been created though advantageously planed cash flow and balance sheets, a variety of products and customers, as well as access to global assets and an always expanding stage of prospects, they are able to determine how a buyers must act an example of this is when BHP Billiton dictated iron-ore prices to steelmakers (Sarah-Jane Tasker. (23/04/2010). Giant iron ore producers are dictating price, says Beijing)In 2009 BHP Billiton and Rio Tinto Signed a Joint gamble which allowed the two companies to control and encompasses all current and future Western Australian iron ore assets and liabilities, this has decreased the amount of competition in the mining industry, as well as eliminating the threat of potential entrants, the joint venture has also allowed the two companies to increased there barging power in terms of exporting the iron-ore, at the same time cutting the bargaining power of those customers, as there is not substitutes for minerals BHP Billiton and Rio Tinto will be able to continue to create a profit in the industry.There are some arguments which view the Porters five force model as out of date and touch with the twenty-first century way of conducting business. Dagmar Recklies who has huge experience in the strategic analysis of markets, companies and business models also a wide knowledge in the development and implementation of concepts for strategic planning writes that Porters ideas have become more and more subject of critique under the impression of the developing Internet economy during the last decade. Critics point out that economic conditions have changed fundamentally since that time. The rise of the Internet and of various e-business applicat ions has strongly influenced nearly all industries. (Recklies, D. (2/5/10). Beyond Porter A Critique of the Critique of Porter)As Michael E Porter is viewed as one of the most influential people in the strategic management way of thinking his models have grown and are being used by managers and business all around the world, even though his models are based on the economic situations in the eighties his theories are stable relent even in a time where a majority of business is done on line. I believe internet competition in any industry has increased. The internet allows business to trade and stay competitive not only locally but global. Many products and even some service operate solely online for example using the porters five force model and applying it to the internet and companies which use only internet it is possible to explain how a business can remain completive.Buyer powerCustomers are able to have a better buyer power when there are more choices in an industry, as with b usiness operating via the internet offering a wider choice of goods and services at lower cost play to how a customer wants to purchase, an example of this is eBay there are millions of different products at lower then retail cost meaning that consumers have a wide choice of products.Supplier powerSupplier power is the opposite to buyer power where by buyers have less choices in an industry in relation to the internet and purchasing products on the internet companies such as Google dominate the internet, other companies use this website as a vehicle to recommend there product to the consumer while paying Google for the opportunity to advertise via there site.Threat of substitutesAs stated early the threat of substitute is high when there are many product options. The internet allows a consumer to shop around and purchase there product form other countries or business where the cost of manufacturing is cheaper.Barriers to entryThe threat of a new entrant into the market which you ar e competing in is high, it is very easy for a local business to setup an internet website and start marketing there product. Even though there is high competition on the internet there is always an opportunity for a business to sell or offer a new product or service.RivalryIn relation to business operating via the internet there is extensive amount of rivalry which will effect how a modern day internet business is able to gain a competitive advantage but by viewing the above factors it will allow the particular business to view the correct direction and strength to successful attain a profitPorters Five Forces object lesson can help tell the attractiveness of starting an on-line business. A business person should use the model to identify competition, make a plan, and implement the process. (Bennett, J. (2/5/2010). Porters Five Forces Model And Internet Competition) As stated in the article by J, Bennett porters five force model is still applicable to the way companies do busines s on the internet you still need to assess you Buyer Power, Supplier power, what threats you product or service has and what the barriers to entry areEven through Dagmar Recklies states that these models cannot explain or analyze todays dynamic changes and have the power to transform whole industries (Recklies, D. (2/5/10). Beyond Porter A Critique of the Critique of Porter) what needs to be mum is that the business running on the internet are still business and they are still subjected to industry competition and that porters five force model will still help a company to analysis how competitive there industry is.There are a number of other models which would help a company determine how competitive the industry is that they are competing in. The Ansoff Matrix proposes that a company will mature whether it markets new or existing products in a new or existing market. If done correctly the Ansoff Matrix will be able to guide a company by suggesting a growth strategy such as Market penetration, product development, market development and diversification.Market PenetrationThis strategy consists of developing companies products to an existing market. This strategy will help a company achieve objectives such as maintaining or increasing the market share on current products, become a market leader, it can help remove competitors from a market and increase the amount existing customers useProduct developmentThe Product development strategy can be used to introduce a new product into existing markets for example developing needs and wants so it can appeal to the particular existing market.Market developmentThis strategy is used to help a company trade an old product in a new market for example selling a product over seas, lowering prices which will attract new customers or distributing a product via a different channel.DiversificationDiversification is a growth strategy where by a business markets new products in new market this strategy is very riskey due to the f act the business is pathetic into a market that it has little or no experience in For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. . (Chapman, A. (2/5/2010). business plans and marketing strategy)Compared to the Porters five force model the Ansoff matrix can be a useful extension to encompass the degree of risk a company will experience by venturing into a new/expanding market (Bennett, R. Vignali, C. (1996). Dancall Telecom A/S in the UK mobile telephone market) it also deals with the possibility that an industry could be attractive because certain companies are in it, such as the Smartphone industry looks like a positive industry to be in but this is only due to Apple being so dominant. The Ansoff result matrix is used as a tool that helps businesses decide their product and market growth strategy where as Porters Five Forces is designed as a tool to hel p managers view a industries opportunities and threats allowing for a completive advantage to be formed.ConclusionIn conclusion Porters Five Forces Analysis is a significant model for reviewing the possible for profitability in an industry. It works by looking at the strength of five important forces that affect competition, Supplier Power which is the power of suppliers to demand up the prices of inputs, Buyer Power which is the power customers to drive down prices, Competitive Rivalry which is able to evaluate the strengths of business in a industry, The Threat of successor helps reference the amount of different products and services that can be used in place of your own and finally The Threat of New Entry which refers to the ease with which new competitors can enter the market.If a company applies this model it will assist the business in viewing and identifying the strengths and directions in which they need to head to sustain profit in there given industryLiterature and Refe rencesPorter, M (10/1980). Competitive Strategy Techniques for Analyzing Industries and Competitors . NY, USA Free Press. 34-56.Aaker, D (2008). Strategic Market Management. 9th ed. New Caledonia Jonh Wiley Sons, Inc. 67-68Sarah-Jane Tasker. (2010). Giant iron ore producers are dictating price, says Beijing. Available http//www.theaustralian.com.au/business/giant-iron-ore-producers-are-dictating-price-says-beijing/story-e6frg8zx-1225854289070. Last accessed 23/04/2010.Niederhut-Bollmann, C, Theuvsen, L,. (2008). Strategic management in turbulent markets. The case of the German and Croatian brew industries. 1 (2), 64.Porter, Michael E.. (Jan2008). THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY.. Harvard Business Review. Vol. 86 (16), 78-93.J Cramer. (2010). Barriers To Entry. Available http//www.investopedia.com/terms/b/barrierstoentry.asp. Last accessed 1/05/2010.Recklies, D. (2008). Beyond Porter A Critique of the Critique of Porter. Available http//www.themanager.org/strategy/B eyondPorter.htm. Last accessed 01/05/2010.Recklies, D. Recklies, O. (2000). Who We Are. Available http//www.themanager.org/rmpenglish/self.htm. Last accessed 2/05/2010.Bennett, J. (2010). Porters Five Forces Model And Internet Competition . 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Harvard Business Journal. 2 (17), 34-50.Coyne, K.P. and Sujit Balakrishnan (1996),Bringing discipline to strategy, The McKinsey Quarterly, No.4.Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980.SEC Form 20-F, BHP Billiton Limited and BHP Billiton plc, for FY 2007 (PDF). BHP Billiton. 2007-09-26. p.274. http//www.bhpbilliton.com/bbContentRepository/20fstatement2007.pdf. Retrieved 2008-04-09.BHP wont be drawn on a Rio sweetener. FT.com (Financial Times). 2007-11-28. http//www.ft.com/cms/s/0/fe0b3904-9d88-11dc-9f68-0000779fd2ac.html. Retrieved 2007-11-28.Pump Industry Analyst. (2010). BHP Billiton plans iron ore mining expansion in Western Australia.. Iron Ore Mining. 1 (2), 3-4.Richardson, M. Evans, C. (2007). Strategy in Action Applying Ansoffs Matrix.. British Journal of Administrative Management . 59 (3), 1-3.