PORTER'S 5 COMPETITIVE FORCES

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Porter's analysis to find competitive advantages

Porter's 5 Forces analysis is a very useful tool for assessing competition in a market and discovering possible competitive advantages.

Here are some tips on how an entrepreneur can use this tool to find competitive advantages:

1. Identify the five forces: the first step is to identify each of Porter's five forces; rivalry between competitors, the threat of new entrants, the threat of substitute products or services, the bargaining power of customers and the bargaining power of suppliers.
2. Assess the intensity of each force: the next step is to assess the strength of each force in the market you want to enter. To do this, you can use different tools, such as surveys, interviews, data analysis, etc.
3. Seek opportunities: Once the forces affecting the market have been identified, the next step is to look for opportunities. It is important to pay attention to the forces that are less intense, as they can be a source of competitive advantage.
4. Discover the weaknesses of the competition: Another useful approach is to analyse the weaknesses of competitors in the market. By identifying competitors' weaknesses, it is possible to find opportunities to develop competitive advantages.
5. Identify key resources and capacities: To develop a competitive advantage, it is important to identify the company's key resources and capabilities. Once identified, these can be used to create a unique and differentiated value proposition that appeals to customers.
6. Keeping up to date: it is important to be aware of changes in the market and the forces affecting it. This will allow the company to adjust its strategy and maintain its competitive advantage over time.

Michael Porter

Over the last 20 years, Michael Porter's book 'Being Competitive' has been a world reference in the field of competitive strategy. Porter gives an answer The Commission has also addressed key questions such as how specialised companies should compete and how they should compete:

• How should multi-sectoral companies do this?
• How do countries compete and how important is their geographical location?
• What impact do globalisation and the internet have on competition dynamics?
• How to turn social responsibility into a competitive advantage?

With great skill, Porter marries theory and practice to help companiesinstitutions and even countries to find their way to Being competitive. In the current economic climate, only those companies that manage to remain competitive will survive.

Michael E. Porter holds the Bishop William Lawrence Chair at Harvard Business School and is the author of 17 books and numerous articles. For the past twenty years, his work has been a benchmark in the field of competitive strategy.

Being competitive

Porter's 5 forces o Bargaining power of buyers or customers:

If the customers are few or very well organised, they could agree on the prices they are willing to pay and will be a threat to the company, The customers will acquire the possibility of settling for a price that seems appropriate to them, but which will generally be lower than the price the company would be willing to accept. In addition, if there are many suppliers, customers will increase their bargaining power, since they have more possibility to change to a higher and better quality supplier, so things change for companies that give bargaining power to their customers from their mechanical positions in order to improve the services of a company...

The bargaining power of customers also is described as the product market: the ability of customers to put the company under pressure, which also affects the customer's sensitivity to price changes. Companies can take measures to reduce buyer power, such as implementing a loyalty programme. Buyer power is high if buyers have many alternatives. It is low if they have few choices.

POTENTIAL FACTORS:

• Concentrations of the buyer to the firm concentration relationship.
• Degree of dependency of existing distribution channels.
• Leverage (+) The main reason for this is that it is not a bargaining tool, particularly in industries with high fixed costs.
• Costs exchange rate of the buyer.
• Availability information to the buyer.
• Availability of existing substitute products.
• Sensitivity at the buyer's price.
• Differential advantage (uniqueness) of industry products.
• Analysis RFM (customer value).

Bargaining power of suppliers or vendors

This "bargaining power" refers to a threat imposed on the industry by suppliers, either because of the power they have or because of their degree of concentration, by the characteristics of the inputs they supply, by the impact of these inputs on the cost of the industry, etc. The cooking capacity of suppliers is generally considered to be low due to lack of food in supermarket chains, which can opt for a large number of suppliers, mostly undifferentiated.

SOME FACTORS ASSOCIATED WITH THE SECOND FORCE ARE:

• Quantity of suppliers in the industry.
• Decision-making power in the price from the supplier.
• Level of organisation of suppliers.
• Purchasing power level.

Threat of new entrants:

This point refers to barriers to entry of new products/competitors.. The easier it is to get in, the greater the threat. In other words, if you are setting up a small business, it will be very easy for new competitors to enter the market. This refers to the ease or difficulty that a new competitor may experience when it wants to start operating in an industry. ​

PORTER IDENTIFIED SIX BARRIERS TO ENTRY THAT COULD BE USED TO CREATE COMPETITIVE ADVANTAGE FOR THE ORGANISATION:

ECONOMIES OF SCALE:

Economies of scale in production, research, marketing and service are likely to be key barriers to entry in the IT industry.

PRODUCT DIFFERENTIATION:

Established companies have brands and have earned the loyalty of their customers over time.

CAPITAL INVESTMENTS:

The greater the resources needed to start a business, the greater the barrier to entry into a sector.

COST DISADVANTAGE REGARDLESS OF SCALE:

Established firms may have cost advantages for a number of reasons, including ownership of technology, product know-how, favourable access to raw materials, favourable location, government support, workforce experience, and so on.

ACCESS TO DISTRIBUTION CHANNELS.

GOVERNMENT POLICY:

The government can limit or prevent entry into certain sectors by requiring licences, limiting access to raw materials such as coal or public land, or other regulations.

VERTICAL INTEGRATION (+).

Threat of substitute products

There is an old saying that no one is irreplaceable. Competition depends on the extent to which products in an industry are substitutable for each other. Postal services compete with courier services, which compete with fax machines, which compete with e-mail, and so on. When one industry innovates, another may suffer. On the other hand, markets where there are several of the same or similar products generally mean low profitability.

THE FOLLOWING FACTORS CAN BE CITED:

• Buyer's propensity to substitute.
• Relative prices of substitute products.
• Cost or ease of the buyer.
• Perceived level of product or service differentiation.
• Availability of close substitutes.
• Sufficient suppliers.

Rivalry between competitors

Among the competitors, it is the result of the four previous ones. Rivalry defines the profitability of an industry: The fewer competitors there are in a sector, the more economically profitable it will normally be, and vice versa. All the above factors converge in rivalry, in rivalry, which for Porter is a cross between active warfare and peaceful diplomacy. They may attack each other, or tacitly agree to coexist, perhaps even form alliances. 

PORTER IDENTIFIED THE FOLLOWING BARRIERS THAT COULD BE USED:

• Large number of competitors.
• Fixed costs.
• Lack of differentiation.
• Diverse competitors.
• Exit barriers.