16 Questions
What is the primary goal of assessing an industry's attractiveness using Porter's Five Forces Framework?
To understand the broader environmental forces that influence profitability
What is the primary motivation for potential competitors to enter an industry?
To capitalize on the profits made by existing firms
Which of the following is NOT a factor that influences the threat of new entrants?
Customer loyalty
What is the primary consequence of new entrants in an industry?
Pressure on prices, costs, and ROI for existing firms
What is the primary role of bargaining power of buyers in Porter's Five Forces Framework?
To determine the power of customers in the industry
Which of the following is an example of an entry barrier?
High capital requirements
What is the primary focus of Porter's Five Forces Framework?
Broader environmental forces that influence profitability
What is the outcome of analyzing the intensity of competition among existing firms?
Understanding the attractiveness of the industry
What is a characteristic of an industry with low bargaining power of suppliers?
Many suppliers with diverse products
What is a consequence of high bargaining power of buyers?
Industry's profitability suffers
What is a characteristic of a substitute product?
Performs the same or a similar function as the industry's product
What is analyzed when assessing the bargaining power of suppliers?
Number of suppliers
What is a consequence of high competitive rivalry?
Industry's profitability suffers
What is a characteristic of an industry with high bargaining power of buyers?
Low switching costs
What is the purpose of differentiating a company from its substitutes?
To try to reduce the threat of substitutes
What is analyzed when assessing the threat of substitutes?
Number of substitute products available
Study Notes
Assessing Attractiveness of an Industry (Porter 5F)
- The Porter 5F framework helps understand competitive forces at work in an industry, assessing the marketing environment and profitability.
- Five factors influence profitability: threat of new entrants, bargaining power of buyers, threat of substitute products, bargaining power of suppliers, and intensity of competition among existing firms.
Threat of New Entrants (Potential Competitors)
- New entrants put pressure on prices, costs, and ROI.
- Analyze entry barriers: time and cost of entry, patents, specialist knowledge, government policy, rules and regulations, capital requirements, economies of scale, brand equity, and access to distribution, switching costs.
Bargaining Power of Buyers (Customer Power)
- Analyze the power of buyers, including wholesalers, supermarkets, and end consumers.
- Factors influencing bargaining power: number of customers, size of each order, price sensitivity, alternative suppliers, information availability, switching costs, and customer federations.
Substitute Products
- Substitute products perform the same or similar functions as an industry's product by different means.
- Analyze the number of substitute products, their performance (quality and price), and cost of change.
- Companies should differentiate themselves from substitutes.
Bargaining Power of Suppliers (Supplier Power)
- Analyze the power of suppliers, considering concentrated supplier industries, variety of customers, high switching costs, and unique services and products.
- Factors influencing bargaining power: number of suppliers, size, uniqueness, and ability to substitute.
Competitive Rivalry (Existing Competitors)
- Intense rivalry among existing firms in the industry can lead to higher costs and decreased profitability.
- Analyze the number, size, and commitment of existing firms, as well as quality differences or similarity in their offerings.
Assess the attractiveness of an industry by analyzing five key factors that influence profitability and competition.
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