Five Force Model

Five force model
This model aimed to provide a new way to use effective strategy to identify, analyze and manage
external factors in an organization’s environment.
Threat of new Entrants

The competitive threat to a company’s business may not only be from existing players in
the market but also from potential new entrants into the market place. If an industry is
profitable, or attractive in a long term strategic manner, then it will be attractive to new
companies. Unless there are barriers to entry in place, new firms may easily enter the
market and change the dynamics of the industry.
The particular dynamics of an industry that restrict entry into it are called barriers to entry
The most attractive scenario for a new company is when a potential market has low
barriers to exit but high barriers to entry. The economics of any industry will determine
the level of difficulty faced when trying to enter this market.
For our industry our threat of new entrants is high because in this industry competition
level is high and rules and regulation of government policies is high than the
competitors.
Threat of Substitutes
Within the framework defined by Porter, substitute products are those that exist in
another industry but may be used to fulfill the same need. The more substitutes that
exist for a product, the larger the company’s competitive environment and the lower the
potential for profit. An example of this is that for a boxed juice producer, fresh juice,
water and soft drinks are all substitutes though they exist in separate categories.
A high threat of substitutes will impact a company’s ability to set prices that it wants. If a
substitute is priced lower or fulfills a need better than it may end up attracting consumers
towards it and reduce sales for existing companies.
For our industry threat of substitute is also high because there are many substitute in the
industry like NATRAJ, APSARA, DOMS, CAMEL etc.
Bargaining Power of Buyers

When buyers have the power to affect prices in an industry, it becomes an important
factor to consider for a company. Buyers are the most important factor in the any
industry. Buyers bargaining power is high if substitute product are available or when
company is new.
For our industry bargaining power of buyer is also high because of the substitute.
Customers switching cost is also high because our company is new in the market so that
they might not be aware about the product.
Bargaining Power of Suppliers

Suppliers provide the raw material needed to provide a good or service. This means that
there is usually a need to maintain strong steady relationships with suppliers. Depending
on the industry dynamics, suppliers may be in the position to dictate terms, set prices
and determine availability timelines. Powerful suppliers may be able to increase costs
without affecting their own sales volume or reduce quantities that they sell.
Supplier may enjoy more power if there are less of them. Costs of switching to an
alternate are high, or there are no alternates. A supplier may also be the only provider of
a certain raw material. This may be the case in instances where a supplier holds a
patent or have proprietary knowledge. Because of a lack of alternates, they may be able
to withhold quantities or increase prices without losing sales.
For our industry bargaining power of supplier is also high because our company new in
the market so that they might not sell our product or refuse to purchase our product.
Competitive Rivalry
One important force that Porter describes is the degree of rivalry between existing
companies in the market. If there are more companies competing with each other, the
resulting competitive pressure will mean that prices, profits and strategy will be driven by
it.
One company may end up having little or no power in its own industry if there is a variety
of quality products are offered in the market in direct competition with it. Customers have
the option of simply moving on to a different company easily. Conversely, in the absence
of this rivalry, the company may be able to freely set prices and profit margins without
being dictated by what the customer finds attractive.
In this our advertisement or promotion cost will be high because competition is high and
customers not aware about the product. We have one advantage that is product
differentiation so that it is chances to survive in the competition.

Five Force Model

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Five Force Model

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Five force model

Threat of new Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

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