Poter’s five forces

As porter’s five forces analysis deals with factor outside an industry that influence the
nature of competition with it, the five forces inside the industry (micro environment)
that influence the way in which firms complete and the industry’s likely profitability
is conducted in poter’s five force model.

The original competitor forces model as proposed by poter identified five forces
which would impact on an organisation’s behaviour in a competitive market. There
include the following:
1. The rivalry between existing sellers in the market.
2. The power exerted by the customers in the market.
3. The impact of the suppliers on the sellers.
4. The potential threat of new seller entering the market.
1. The threat of substitute products becoming available in the market

• There is the rivalry or hard core competition between the British

Airways and another airline.
• How the customers feel about the airline or what is the brand equity of
the BA?
• How the suppliers of food beverages and another product to the British
airways are behaviour.
• There is chance of new entries/competitors in the market.
The degree of Rivalry: in context of British Airways.

The industry of rivalry which is most obvious of the five forces in an industry will be
dissipated through head-to- head competition.

The threat of entry

Both potential and existing competitors influence average industry profitability. The
threat of new entrants is usually based on the market entry barriers. The most
common forms of entry barriers, except intrinsic physical or legal obstacles are as
follows:
• Economics of scale for example, benefits associated with bulk purchasing.
• Cost of entry for example investment into technology.
• Distribution channels for example ease of access for competitors.
• Cost of advantage not related to the size of company for example contacts and
expertise.
• Government legislations for example introduction of new laws might weaken
company’s competitive position.
• Differentiation for example certain brand that cannot be copied.
•
The threats of substitutes

The threat of substitute products pose to an industry’s profitability depends on the

relative price to performance ratios of the different type of products or services to
which customers can turn to satisfy the same basic need. The threat of substitution is
also affected by switching cost that is the cost in areas such as retraining, retooling
and redesigning that are incurred when a customer switches to a different type of
product or services. It also involves:
• Product for product substitution (email for mail, fax) is based on the
substitution of need.
• Generic substitution (video suppliers complete with travel companies)
• Substitution that relates to something that people can do without (cigarettes,
alcohol)

Buyer power

Buyer power is one of the two horizontal forces influence the appropriation of the
value created by an industry (here the airline industry). The most important
determinants of buyer power are the size and the concentration of customers. Other
factors are the extent to which the buyers are informed and the concentration or
differentiation of the competitors.
• This force is relatively high where there a few large players in the market.
• Low cost of switching between suppliers such as from one fleet supplier of
truck to another.ggg