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Michael Porter's Five Forces Model

* The level of rivalry among organizations in an industry. The more that companies compete against one another for customers-for example, by lowering the prices of their products or by increasing advertising-the lower is the level of industry profits.

* The potential for entry into an industry. The easier it is for companies to enter an industry-because, for example, barriers to entry, such as brand loyalty, are low -the more likely it is for industry prices and therefore industry profits to be low.

* The power suppliers. If there are only a few suppliers of an important input, then suppliuers can drive up the price of that input, and expensive inputs results in lower profits for the producer.

* The threat of substitute products. Often, the output of one industry is a substitute for the output of another industry. Companies that produce a product with a known substitute cannot demand high prices for their products and this constraint keeps their profits low.

Source:Contemporary Management 3rd Edition by Jones & George

posted by Juan Raul Relloso @ 4:25 PM