School in 1979 as a simple framework for assessing the position and competitive forces of a company.
This framework is based on the idea that there are five basic competitive forces that make up each industry. And they help determine the intensity of competition and market attractiveness. In addition to identifying strengths in the business. Which helps to understand the strength of the company’s current competitive position. And the strength of the position it is looking to reach. Porter.
Strategic analysts use Porter’s Five Competitive Forces to determine whether new products or services are profitable. By identifying strengths. Improving weaknesses. And avoiding errors.
Porter’s Five Competitive Forces
1- The power of suppliers
It is a measure of the strength of suppliers and the extent of their control over price increases. Which in turn reduces the profitability of the company. Porter.
The analysis also measures the number of available suppliers. The fewer their number. The greater their power and control. And companies are in a better position the greater the number of suppliers. In addition to measuring the cost of transferring from one supplier to another.
2- Intensity of competition
This strength measures how intense competition is in the market today. Porter. and this is done by determining the number of current competitors and the capabilities and capabilities of each competitor.
Competition intensifies when there are few companies selling a product or service. And when the industry grows and it becomes easy for consumers to switch to any competitor offering a low cost offer. And then competition increases and there are advertising and price wars between competing companies. Which may harm the interests of companies.
3- Customer power
This strength measures the extent to which customers are able to influence prices and quality. Customers are more powerful when there are few versus many sellers.
Customer power increases when it is easy to switch from one company to another. While customer power decreases when they buy small quantities of products. And the product offered by the seller is different from any product offered by competitors.
4- Threat of substitute products
This strength measures how easily consumers switch from one company to a competing company because it offers a less expensive product or service. Thus reducing the power of suppliers and market attractiveness.
This force also compares the price and quality of competing goods. And the amount of profit that competitors make. Which will determine whether they can reduce their costs further.
The threat of substitute products is determined by changing costs. Both immediate and long-term. As well as the propensity of buyers to change.
5- Threatening new competitors
This force measures how easy or difficult it is for new competitors to enter the market. The more easily competitors enter the market. The greater the risk of declining the market share of existing companies and reducing their profits
There are several barriers to entry for new competitors such as capital requirements. Economies of scale. Government policies. And absolute advantage
Advantages and Disadvantages of Porter’s Five Competitive Forces
Porter’s competitive forces help companies understand the factors that affect profitability in a particular industry.
It can assist in making specific decisions whether to enter a specific industry. To increase capabilities within a particular industry. Or to develop competitive strategies.
This model can be used when there are at least three competitors in the market. Considering the impact of current or potential government policies on the industry.
It also takes into account the life cycle of the industry where the early stages are the most difficult. As well as considering the changing attributes of the industry
On the other hand. Porter’s model has been criticized for omitting strategic alliances between firms.
In the 1990s. Adam Brandenburg and Per Nalbouf created the concept of the “sixth force” using the tools of game theory.
Under this new model. Complementary products and services are put to better use by integrating them with competitor’s products and services.
An example of this is the cooperation between Intel. Which makes processors. And Apple. Which makes computers.
So Porter’s model has been criticized for assuming that buyers. Suppliers and competitors do not interact with each other