3.2 Market Forces.pptVIP

1-# OUTCOME 3.2  Use a range of examples to illustrate the relationship between market forces and organizational responses (3.2) There are five market forces according to Porter’s model. Identify the five forces and explain how they impact on competition. Take Walmart as an example, and illustrate the relationship between five factors and its response. Michael Porter’s Five Forces Analysis The Five Forces Analysis helps the marketer to compare the competitive environment. It focuses on a single, stand alone business or SBU (Strategic Business Unit) rather than a single product or range of products. Michael Porter’s Five Forces Analysis Michael Porter’s Five Forces Analysis is the most influential and analytical model for assessing the nature of competition in industry. It also helps identify why some industries are more profitable than others. The purpose of Five-Forces Analysis The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is. Five Key Areas There are five key areas which need to be explored which are: Threat of entry Power of buyer Power of suppliers Threat of substitutes Competitive rivalry Model of Five Forces Analysis Threat of Entry Definition: The threat to new entrants which depends largely on barriers of entry. These are factors that need to be overcome by new entrants if they are to compete successfully within the market place, such as: Economies of scale – benefits associated with bulk purchasing High or low cost of entry – how much will it cost for the latest technology Ease of access to distribution channels Cost advantages not related to size of company – personal contacts/knowledge that larger companies do not own/learn about curve effects. How important is differentiation Government action – will new laws be introduced that will weaken our