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Porter’s Five Forces Model
Introduction
Starting a business or developing an existing business, it is necessary to consider the porter’s five forces to answer questions that may arise from competition. The five porters model help to determine whether a business will be profitable or not when comparing with other businesses within the same field of operation. Magretta (2013) the importance of comprehending the competitive forces and their fundamental reasons, will disclose the base of the market’s present productivity and will provide the procedure for forecasting and inducing competition overtime.
Purpose of porter’s five forces model.
The porter’s five forces study helps a company to comprehend the issues affecting productivity in a given market, help to update judgments connecting to: whether to entre a given market, whether to maximize volume in a given market and developing the competitive strategies, (Magretta, pg. 87, 2013). For example, threat of new entry to a given market is a strong force to the existing marketers in that market.
This is because a market which is productive will attract new entrants and this will eventually corrodes profitability. In order to maintain profitability, the given market will be protected by solid and long-lasting barriers to entry such as economies of scale, patents, government policies or capital requirement. Unless this barriers are implemented, the market will experience a competitive decline rate of profitability.
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Also, the buyer power is a weak force to determine the profitability and competition in a given market. This is because, it is easy for the buyers in a given market to drive the prices down. To do so, several factors such as importance of each buyer in the market, the cost of buyer switching from one supplier to another or number of buyers in the market, (E. Dobbs, pg. 43, 2014). If in a given specific market has few and influential customers, they are in a position to command their own terms.
References
E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
Magretta, J. (2013). Understanding Michael Porter: The essential guide to competition and strategy. Harvard Business Press.
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