PORTER’S SIX FORCES MODEL
INSTRUCTOR:MA’AM UROOJ ISTAQLAL
PRESENTED BY
SAVERA KHATRI(58715)
SAFIA SUTANA(58630)
MARRIUM IKHLAQ(58660)
• The six forces model is an analysis model used to give a assessment of any given
industry and identify the structural underlining drivers of profitability and
competition.
• The model is an extension of the Porter's five forces model proposed by Michael
Porter in his 1979 article published in the Harvard Business Review "How
Competitive Forces Shape Strategy".
• The sixth force was proposed in the mid-1990s. The model provides a framework
of six key forces that should be considered when defining corporate strategy to
determine the overall attractiveness of an industry.
New Entrants
Complimentary
Powerful suppliers
Products
Industry
Powerful buyers
Competition
Substitute
products
There are several dimensions that rivals within an industry can
compete on
• Price discounting (cost leadership strategy)
• Introduction of new services/ products (innovation strategy)
• Improvement of service quality (customer-orientation strategy)
etc.
Intensity of competition is highest if:
• Competitors are equal in size and power.
• Industry growth is slow.
• Exit barriers are high.
• Price competition is particularly destructive to profitability as it
is easy to identify price competition meaning other competitors
can retaliate.
• New entrants put pressure on current organisations within an industry
through their desire to gain market share.
• This in turn puts pressure on prices, costs and the rate of investment
needed to sustain a business within the industry.
• The threat of new entrants is particularly intense if they are
diversifying from another market as they can leverage existing
expertise, cash flow and brand identity as it puts a strain on existing
companies profitability.
Barriers for New Entrants
• Barriers to entry restrict the threat of new entrants.
• Barriers to entry are advantages that existing, established companies
have over new entrants.
According to Porter, there are 7 major barriers:
1. Supply-side economies of scale
2. Demand-side economies of scale
3. Capital requirements
4. Incumbency advantages independent of size
5. Unequal access to distribution channels
6. Restrictive government policies
• Powerful customers can play different companies off against
each other in order to drive price down or demand a high
quality of service.
• Bargaining power is high in a customer group if:
Limited number of buyers/one buyer who buys in a large
volume
Products are not unique
Switching costs are low
Powerful suppliers (e.g. labour suppliers) can influence profitability of an industry
though charging higher prices, limiting service quality or by shifting costs to the
industry participants.
A supplier group is powerful if:
• It is more concentrated than the industry it is selling to
• It doesn't heavily rely on the industry to gain revenue
• Switching costs are high for the industry members
• Suppliers produce unique products that have no substitutes
• Can legitimately threaten forward integration
• Substitutes are often overlooked as they can appear to provide
something completely different but they need to be considered
when thinking about overall competitiveness of a company.
• When the threat of substitutes is high, industry profitability
suffers.
The threat of substitutes is high if:
• Switching costs are low
• Price-performance trade off
• This force was the sixth force, added in the revised 1990s model.
• It refers to products or services that are compatible with what a particular
industry sells.
• The effect of complementary goods on an industry's profitability generally
depends on how reliant the product or service is on the compatible
product.
• If one cannot function without the other, the impact is high.
• If the complementary good is doing well.
• if performance is bad
New Entrants
Complimentary
Powerful suppliers
Products
Industry
Powerful buyers
Competition
Substitute
products
• Apparel industry primarily
concerned with the production
of yarn, and cloth and the
subsequent design or
manufacture of clothing and
their distribution. The raw
material may be natural or
synthetic using products of the
chemical industry.
• Cotton manufacturing
• Synthetic fibers- rayon nylons and polyesters
• Natural fibers- sheep, goat, rabbit, silk-worm flax,
Hemp, Jute sisal
• Economies of scale apparel industry is high
• Industry will buy raw materials in bulk for further
production when raw materials buy in bulk the
average cost will reduce
• Product differentiation will be high for new entering
industry in terms of brand identification, brand
loyalty, quality, consumer service and advertising to
overcome by strong existing one and who are first in
market
Eg :Harpa and calvin klein
• Apparel industry need huge capital requirement for
plant & machineries, land, raw material and
advertisement endorsing and startup losses.
• Comparatively the Government policies are few for
apparel industry to startup , they required license for
textile mill , import & export etc
• When the firm’s financial aspects are strong it can
enter apparel industry easily, legal aspects play a role
when the manufacturing is into textiles.
• Over all entry barriers for entering into apparel
industry is not so difficult too.
• Suppliers refer to the firms that provide inputs to the
industry.
• Bargaining power of the suppliers refer to the
potential of the suppliers to increase the prices of
inputs like labour, raw materials, services, etc or the
costs of industry in other ways.
• When it is for unique product
Eg: Fur
• When it is for less product differentiation
Eg: Silk
• Suppliers have high bargaining
power when the supply is for
unique and un differentiated
products.
• Buyers refer to the customers who finally consume the
product or the firms who distribute the industry’s
product to the final consumers.
• Bargaining power of buyers refer to the potential of
buyers to bargain down the prices charged by the firms in
the industry or to increase the firms cost in the industry
by demanding better quality and service of product.
• When they buy in bulk
Eg: Manufacturer Whole seller
• When they can find alternative suppliers:
Eg: Levies, Spykar, Pepe jeans etc
• Bargaining power of buyers is high when they buy in
huge quantity and also when there are more number
of suppliers to the market
• These are the alternative products/ brands satisfying the
similar need of the customer
• Substitute products affect when the switching cost is high
Eg: Levis and Pepe jeans
• Switching for quality, durability and status
Eg: Luiviton, Gucci
• Substitute product affects when the switching of
brand takes place.
• It also affects for the factors like quality, status
symbol etc
• Rivalry refers to the competitive struggle for market
share between firms in an industry.
• Extreme rivalry among established firms poses a
strong threat to profitability.
• Competitors include numerous apparel designers,
manufacturers, distributors, importers, and retailers
• Eg: competitors like
• Nike, Puma, Reebok and Adidas
• Biba and Global Desi
• Peter England, Van Heusen, Louis
Philip, Arrow, Allen solly
• Apparel industry is facing huge competition
• Due to such intensive competition survival of
a new entrant is hard.
• Apparel industry is one of the booming industry
• The above factors determine that the entry barrier
for a new entrant in apparel industry is high.
• It is difficult for a new entrant to enter and exit
easily, because it will have to face the initial losses
• It is very difficult to match the service level of the
established competitors of the market for initials.
• Gaining the customer loyalty is too difficult and
involve huge time, cost to achieve it.
Once your analysis is complete, it is time to implement a strategy to expand
your competitive advantage. To that end, Porter identified three "generic
strategies"that can be implemented in any industry, and in companies of any
size:
1. Cost leadership: In this strategy, your goal is to increase profits by reducing
costs while charging industry-standard prices, or to increase market share by
reducing the sales price while retaining profits.
2. Differentiation: This strategy aims to make the company's products
significantly different from the competition, improving their competitiveness
and value to the public. This strategy requires both good research and
development and effective sales and marketing teams.
Focus: In the focus strategy, businesses select niche markets
in which to sell their goods. This strategy requires intense
understanding of the marketplace, its sellers, buyers and
competitors. The use of this strategy frequently requires the
companies to also implement a cost leadership or
differentiation position.
Porter said the new strategy should be executed at the
corporate, business unit and departmental levels. Of these,
Porter considered the business unit most significant.
