Business success tips

Analysisbusiness

We make analysis. You do business.

The power of quantifying the Porter’s 5-force model

Share on your social media:

Understanding the industry with Porter’s 5-force model is one of the core elements of well conducted business analysis. According to the TOP-DOWN approach, industry analysis normally follows the environmental analysis.

When introduced, Porter’s 5-force model turned the perception of profitability upside down. Michael E. Porter, a world-renowned economist, professor and author of the leading literature on strategic management, linked the attractiveness of the industry to forces such as clients, suppliers, competitors, substitutions and new entrants.

The strategic management tool is crucial for proper understanding of industry profitability and its developments.

 Interestingly, unlike some other more quantitative methods, Porter’s 5-force model is primarily based on qualitative evaluation. 

 

Quantification of Porter’s 5-force model?

Quantifying Porter's 5-forces - Business analysis

With quantification and visual presentation of the model one is able to communicate the findings of the Porter’s 5-force model more efficiently. Seeing the spikes or deviations is easy and fast to understand and very powerful decision-making base. With this approach, we can also successfully compare the effect of:

  • reference company in relation to its comparable peers
  • reference company in relation to time – now vs future.

Let’s better understand also the key forces on which the model focuses on:

1st force of the Porter’s 5-force model – the bargaining power of buyers

The bargaining power of buyers is present when buyers abuse their power to lower purchase prices, increase quality, add additional services, etc.

Factors that influence the bargaining power of buyers are: Concentration of buyers, Fragmentation of suppliers, Alternative sources of supply, Low switching costs, The importance of product / service for the customer, The risk of takeover by the buyer etc.

2nd force of the Porter’s 5-force model – the bargaining power of suppliers

Supplier bargaining power exists when suppliers misuse their power to increase selling prices, reduce quality, dispose of additional services, etc.

Factors that influence the bargaining power of suppliers are: Concentration of suppliers Fragmentation of customers Alternative sources of supply High switching costs Strong supplier brand The importance of the transaction for the supplier The risk of takeover by the supplier etc.

3rd force of the Porter’s 5-force model – the newcomers entry threat

The entry of new competitors usually leads to a lower profitability of all competitors in the industry.

Factors influencing the threat from new entrants are: Initial investments in property, plant and equipment, Economies of scale, Experiences Access for supply and distribution channels, Expected retaliation, Loyalty of customers and suppliers, Legislation and policy, Differentiation etc.

4th force of the Porter’s 5-force model – the danger of substitutes

The profitability of companies operating in the sector is influenced not only by competition and new entrants, but also by substitutes.

The threat of substitutes is three-dimensional: Product / service for substitution, Substitution of demand, Generic substitution.

5th force of the Porter’s 5-force model – the rivalry

Factors that influence the rivalry are: Competitors are in balance, Low differentiation, Slow market growth, High fixed costs in the industry, High exit barriers etc.

 


Share on your social media:

27 thoughts on “The power of quantifying the Porter’s 5-force model

  1. If some one wishes to be updated with most up-to-date
    technologies afterward he must be go to see this web page
    and be up to date everyday.

  2. Great post. I used to be checking continuously this blog and I’m impressed!
    Very useful info specifically the last section 🙂 I care
    for such info much. I used to be looking for this certain info for a long time.

    Thanks and good luck.

  3. magnificent points altogether, you just gained a brand new reader. What would you suggest in regards to your post that you made some days ago? Any positive?

  4. I used to be very happy to search out this net-site.I needed to thanks to your time for this excellent learn!! I definitely having fun with every little bit of it and I’ve you bookmarked to take a look at new stuff you blog post.

  5. It’s a pity you don’t have a donate button! I’d without a doubt donate to this brilliant blog! I suppose for now i’ll settle for book-marking and adding your RSS feed to my Google account. I look forward to new updates and will share this site with my Facebook group. Chat soon!

  6. Many thanks for your post. I’d really like to comment that the price of car insurance will vary from one insurance plan to another, since there are so many different issues which play a role in the overall cost. As an example, the make and model of the automobile will have a huge bearing on the cost. A reliable aged family automobile will have a more economical premium when compared to a flashy sports vehicle.

  7. Hey There. I found your blog using msn. This is an extremely well written article. I will be sure to bookmark it and return to read more of your useful information. Thanks for the post. I抣l definitely return.

  8. An impressive share, I simply given this onto a colleague who was doing a bit evaluation on this. And he actually purchased me breakfast because I discovered it for him.. smile. So let me reword that: Thnx for the deal with! But yeah Thnkx for spending the time to discuss this, I really feel strongly about it and love reading more on this topic. If doable, as you turn out to be experience, would you thoughts updating your blog with extra details? It is extremely useful for me. Massive thumb up for this weblog publish!

  9. You could certainly see your skills in the work you write. The sector hopes for even more passionate writers like you who aren’t afraid to say how they believe. At all times follow your heart.

  10. hello!,I really like your writing so much! percentage we keep in touch more approximately your post on AOL? I need a specialist on this house to solve my problem. May be that is you! Looking ahead to see you.

  11. The following time I read a blog, I hope that it doesnt disappoint me as much as this one. I mean, I do know it was my choice to learn, but I truly thought youd have something interesting to say. All I hear is a bunch of whining about something that you could fix should you werent too busy searching for attention.

  12. Yet another thing is that while looking for a good on-line electronics store, look for online stores that are continually updated, always keeping up-to-date with the most recent products, the top deals, as well as helpful information on products and services. This will ensure you are dealing with a shop which stays over the competition and give you what you should need to make knowledgeable, well-informed electronics buys. Thanks for the vital tips I have learned through the blog.

  13. The spare parts of the junk vehicles are the higher supply of money and recycling.
    These buyers offers junk automotive removing quote
    in New York to become profitable from trash cars both by reselling them to recycled market or selling their proper
    parts to the open market. As they shed lots of toxic carbon gases because it releases the
    scent is inconceivable to inhale and even left
    a few of the unhealthy effect on the person. Elements are differently used for
    various goal if faraway from the car such as tires, batteries, glasses, instruments, nuts, seats, covers can be directly offered off to the market at a better value and
    other might be molded for betterment of the society by eradicating its toxicity.

    Recycling individuals are correctly coated during the process still even after such
    safety they get adversely affected. Batteries and tires have to be used carefully while making its utilization once more.

  14. I抦 impressed, I have to say. Actually not often do I encounter a blog that抯 both educative and entertaining, and let me tell you, you have hit the nail on the head. Your concept is excellent; the difficulty is one thing that not enough persons are speaking intelligently about. I’m very comfortable that I stumbled across this in my search for one thing regarding this.

  15. Hi my loved one! I wish to say that this article is awesome, great written and come with approximately all vital infos. I抎 like to see extra posts like this .

  16. Hi, I do believe thіs is an excellent site. I stumbledupon it 😉 I am going to return yet again since
    I book maгked it. Money and freedom is the greatest way to change, may you be rіch and cߋntinue to guide
    others.

    Here is my web site; bokep indo hot

  17. You can definitely see your expertise in the work you write. The world hopes for even more passionate writers like you who aren’t afraid to say how they believe. Always follow your heart.

Leave a Reply

Your email address will not be published.