Porters Five Forces

                             Porters Five Forces

The porters five forces is a simple but powerful tool which basically tells us where or if power lies ahead in the business. This is important because it tells you the strength of your current position and the strength your considering to move into.

Through this you already knowing where strength in the business lies which will avoid you from taking the wrong steps which can cause a loss for the business. 

It analyses that there are five forces that will determine competitive power in  business situation.

The first is supplier power through which it is easily assessed for suppliers to drive up prices. This is driven by the uniqueness of the product their strength over you and the cost of switching on from one to another.

Then comes buyer power here it is said how easy it is for the buyers to pull down the prices. Again this is driven by the number of buyers the importance of the buyer for your business and the cost of switching from your products and services to someone else business.

The third is competitive rivalry, what is important over here is basically the number and capability of your competitors. If you have many competitors and they are offering the same products as you then you have no gain from this situation as suppliers and buyers might go to someone else if they do not get a good deal from you. But if no other business can not offer what you are offering then this is a very strong position for you.

Fourth is threat of the substitution which is reflected by the ability of your customers to find a different way of doing what actually you are doing. If substitution is easy you have no power over here more of a weakness.

Fifth and final one is the threat of new entry in which power is effected by the ability of the people to enter your market. If there are few economies of scale and you have little protection the new competitor can easily and quickly enter your market and weaken your position. If you have strong barriers to entry then you have a fair advantage over the situation.

Porters five forces are very important but also using it gives you a slight picture of what it looks like. Also in now days there is like a huge advancement in technology there is an increase in the industries which makes you realize you have to take your competitors seriously. You yourself have to bring innovative thinking and offer something that your competitors just can not.

Here is the video that we were shown in our class. Over here porter himself explains the five forces.