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Porter's Five Forces for Entrepreneurs

Porter's Five Forces model can be applied to assess the attractiveness and competitiveness of a market segment for a business. The five forces are: 1) Rivalry between existing competitors in the market segment, considering aspects like number of competitors and marketing tactics. 2) Bargaining power of suppliers, which is stronger when there are few dominant suppliers. 3) Bargaining power of customers, which increases when customers have many similar product options. 4) Threat of new entrants, which depends on barriers like economies of scale of incumbents. 5) Threat of substitute products that meet the same customer needs but are not direct replacements. Understanding these forces helps evaluate the external business environment of the target market segment

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Danara Ann Meana
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114 views1 page

Porter's Five Forces for Entrepreneurs

Porter's Five Forces model can be applied to assess the attractiveness and competitiveness of a market segment for a business. The five forces are: 1) Rivalry between existing competitors in the market segment, considering aspects like number of competitors and marketing tactics. 2) Bargaining power of suppliers, which is stronger when there are few dominant suppliers. 3) Bargaining power of customers, which increases when customers have many similar product options. 4) Threat of new entrants, which depends on barriers like economies of scale of incumbents. 5) Threat of substitute products that meet the same customer needs but are not direct replacements. Understanding these forces helps evaluate the external business environment of the target market segment

Uploaded by

Danara Ann Meana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

2.

) HOW CAN YOU APPLY THE PORTER’S FIVE FORCES OF MODEL TO THE PRINCIPLE OF “COURSE
ON COMPETITIVE MARKET”?

When you want to start a business, create a business or even explore new market segments with existing
companies, one of the first and most important steps to take is to assess the attractiveness of each segment
carefully, and a very useful tool for this is Porters 5 forces model. The entrepreneur or manager needs to be
aware of how variables or market forces governing this segment will positively or negatively affect your
business. Dedicated to knowing the background of the external business environment and the degree of
attractiveness of a particular market sector.

Porter Force 1: Rivalry between competitors


Regarded as the most expressive in Porter’s 5 forces model, the rivalry between competitors is the major
determining factor for market competitiveness. In this regard, one must keep in mind the direct competitors,
i.e. those who sell the same type of product in the same market segment, for the same type of consumers who
share common needs or wants. Quantity and diversity of competitors, as well as marketing and advertising, are
situations to be considered.

Porter Force 2: Supplier bargaining power


Also known as market inputs, but that is not necessarily related to the suppliers of raw materials, as in the case
of digital marketing companies that often hire IT professionals or designers as suppliers. The bargaining power
of suppliers lies in some important points, the main one being when a few suppliers largely dominate the
sector, then it ends up creating a problematic relationship of dependency. A supplier with power and influence
has an absolute advantage when negotiating amounts, terms and payment, and thus could end up impacting
the profit of the client companies.

Porter Force 3: Customer bargaining power


Customer bargaining power is one of the main forces of Porters 5 forces model, because what keeps
companies alive is precisely the consumption of the products and services they offer, and more and more
consumers demand higher quality at lower prices. In this way, customers place their competitors under
pressure and play against each other. A possible combination of scenarios that gives bargaining power to
customers is when, for example, a purchase in a particular industry which has large volumes of standardized
products, almost identical, with no major differences. In this case, there is a price and marketing war among
competing companies, aiming to win customers, and profit margins are therefore weakened.

Porter Force 4: Threat of new entrants


It refers to any barriers to the entry of new competitors in a given market segment. These barriers can affect
input or output, i.e., entrances or exits of companies in different sectors. Besides hindering new companies that
are trying to get established in various market sectors, barriers also hinder them when once started,
established companies have all of the customers, at least at first. One of the main barriers or threats to new
entrants are the organizations that work with economies of scale, which gives them lower costs, while for
incoming businesses these costs are proportionately higher. Other barriers to be mentioned: large initial
investment, government restrictions (such as patents, licenses, and subsidies) and difficulty of access to
distribution channels.

Porter Force 5: Threat of substitute products


According to Porters 5 forces model, substitute products are not exactly alike, but meet the same needs of
consumers and customers. It is called indirect competition, which although at first may not be as intense and
threatening as direct competition, it has great importance and must always be taken into consideration. The
most obvious case is perhaps of the margarine and the butter, but there are other classic examples of
substitute goods that have caused havoc on competitors. One such example is that of typewriters, which
gradually ceased to exist with the advent of personal computers. Currently the decision-making process in any
organization, whether strategic, tactical or at the operational level, has to be as fast and accurate as possible,
to enable the success of the company.

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