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Strategy: Porter's Five Forces Model: analysing industry structure Defining an industry An industry is a group of firms that market products which are close substitutes for each other (e.g. the car industry, the travel industry). Some industries are more profitable than others. Why? The answer lies in understanding the dynamics of competitive structure in an industry. The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model, which is described below:

Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are - The threat of entry of new competitors (new entrants) - The threat of substitutes - The bargaining power of buyers - The bargaining power of suppliers - The degree of rivalry between existing competitors Threat of New Entrants New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include - Economies of scale - Capital / investment requirements - Customer switching costs

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- Access to industry distribution channels - The likelihood of retaliation from existing industry players. Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute - The relative price and performance of substitutes - The costs of switching to substitutes Bargaining Power of Suppliers Suppliers are the businesses that supply materials & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining power of suppliers will be high when: - There are many buyers and few dominant suppliers - There are undifferentiated, highly valued products - Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets) - Buyers do not threaten to integrate backwards into supply - The industry is not a key customer group to the suppliers Bargaining Power of Buyers Buyers are the people / organisations who create demand in an industry The bargaining power of buyers is greater when - There are few dominant buyers and many sellers in the industry - Products are standardised - Buyers threaten to integrate backward into the industry - Suppliers do not threaten to integrate forward into the buyer's industry - The industry is not a key supplying group for buyers Intensity of Rivalry The intensity of rivalry between competitors in an industry will depend on: - The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader - The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting - Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry

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- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier - Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less - Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) then competitors tend to exhibit greater rivalry.

Porter five forces analysis From Wikipedia, the free encyclopedia Jump to: navigation, search This article relies on references to primary sources or sources affiliated with the subject, rather than references from independent authors and third-party publications. Please add citations from reliable sources. (October 2009)

A graphical representation of Porter's Five Forces Porter's Five Forces is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven down to zero. Three of Porter's five forces refer to competition from external sources. The remainder are internal threats. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers. This five forces analysis, is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.[citation needed]

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Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he found unrigorous and ad hoc.[1]

Contents 1 The five forces o 1.1 The threat of the entry of new competitors o 1.2 The threat of substitute products or services o 1.3 The bargaining power of customers (buyers) o 1.4 The bargaining power of suppliers o 1.5 The intensity of competitive rivalry 2 Usage 3 Criticisms 4 See also 5 References 6 Further reading 7 External links

[edit] The five forces [edit] The threat of the entry of new competitors Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition). The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily. Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands Absolute cost Industry profitability; the more profitable the industry the more attractive it will be to new competitors.

[edit] The threat of substitute products or services The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives: Buyer propensity to substitute Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product.

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Substandard product Quality depreciation

[edit] The bargaining power of customers (buyers) The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer volume Buyer switching costs relative to firm switching costs Buyer information availability Ability to backward integrate Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products RFM Analysis

[edit] The bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition - ability to forward vertically integrate and cut out the BUYER

Ex. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him. [edit] The intensity of competitive rivalry For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation Competition between online and offline companies Level of advertising expense Powerful competitive strategy [2] The visibility of proprietary items on the Web used by a company which can intensify competitive pressures on their rivals.

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How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation. Technological advances protect companies from competition. This applies to products and services. Companies that are successful with introducing new technology, are able to charge higher prices and achieve higher profits, until competitors imitate them. Examples of recent technology advantage in have been mp3 players and mobile telephones. Vertical integration is a strategy to reduce a business' own cost and thereby intensify pressure on its rival...

About the 4Ever

4ever - Natural Herbal Skin Care

Products

The 4ever Skin Naturals is a fully Sri Lankan owned company. Owned by the Ms. Chandani Bandara, Chief Executive, a well-known professional Hair &Beauty Consultant continues to grow the company. We are a customer focused business offering a range of skin care products. We are constantly launching fabulous new products, sourcing new ingredients and campaigning on social issues. These are just some of the ways we strive to grow our business - both commercially and ethically. At the heart of our business are our values. In everything we do we are committed to helping protect the planet, defending human rights, activating self-esteem, supporting community trade and remaining strong on our stance against animal testing. It is not just part of our jobs - it is part of our corporate DNA! We help create sustainable trading relationships with marginalized communities around the Sri Lanka. We believe business has the power to make the right kind of difference to the world, and the best way to convince others is to lead by example. All our products are made with a love of life and the world we live in, individuality, community spirit and a commitment to trading fairly

Our product guide are :-

ha Face Wash Rose Acne Herbal Face Wash

Tea Tree Oil F

ace W

ash Nelli Herbal Face Wash

GLOW Lifti

ng Face Mask

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Orange WHITENNING Face Mask

Herbal Pimple Pack

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( Powder)

Herbal Face Scrub Pack

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Herbal Pimple

Gel Pack

Kohomba Kaha Face Pack

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Kohomba Kaha

Face Scrub

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Seaw eed Face Mask

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Achievements

4Ever Skin Naturals (Pvt) Ltd was recently awarded with the prestigious GMP (Good Manufacturing Practices) certification on Cosmetics. This certification on cosmetics is based on European & Asian standards for manufacturing and packaging of cosmetics. This is yet another endorsement for 4Ever products of its superior product quality, consistency and hygienic manufacturing conditions. Pictured here at the certification award ceremony at SGS office are Mrs Chandani Bandara; Proprietor/CEO of 4Ever Skin Naturals (Pvt) Ltd accepting the GMP Certificate from Mr N. Sriram, Country Manager-SGS Lanka (Pvt) Ltd. Others from left are Mr Tharindu Herath Field Sales Manager, Mr Hiran Indika Operations Manager, Mr Dilshard Perera General Manager (Group Sales & Marketing), Ms Anuji Gunasekera quality Assurance Executive, all from 4Ever and Mr Sumanasiri Batuwita Manager Certification from SGS.

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How to use use compatetive statergies with other products MS chandani bandara is famous beatu in sri lanka So They use their promotion focurse from her

They not use chemical material for their product they certify their product are naturel row material

They use to intorduse new product from attractive advertising in media They try to swich cost than other their compertitives Their distribution method are succfully because customer can brought their product in any shop They introduce various product price as this system customer can buy their product easily

17 They organize workshop and It is very important for their customers as well as they try to creat new customers for their brand They sponser for tv programme

Porter's Five Forces Model simply outlines the five most important factors taking place and shaping an industry in order to determine it's attractiveness for new entrants, or as a means to shape strategy for competitors within the industry. They are:

Bargaining Power of customer

they introduce their product for all young female & male customers in sri lanka they provide swich cost in product , hight quality product ,naturel product & work shop regarding beauty culturel .they introduce various level price for various product therfore supply the custormers satisfaction. Throught they can create continue customers. Bargaining Power of Supplier They have no of suppliers in sri lanka but we try to get our best materials for our produt. In that momemnet we consider about quality, specially we use only naturel

18 things. they never consider about price if they supply best materials they like to brought higher price. Morever specialy they test material quality under because they have a responsibility for the customers. Threat of Substitutes.

There are number of substitutes in market tose are; Nature secreats Ever yourth Janet EVE Algey etc.

Above products introduce cosmatics things only but forever company introduce a dioli tea for market. Forever product introduce high quality prouct between other products because they never use chemical things and they supply their product under lower price. Threat of New Entrants. Ex - Is it easy for competitors to enter your industry because of: low startup costs, few existing competitors in a large market, easy to understand/use product? OR, is it a challenge because of the difficult nature of the business Intensity of Competition. Ex - Are there a lot of players a in small market or very few players in a large market

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