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Handwritten Notes, Paper 1, , Paper 2, (Management), , Soft Copy, , ₹ 100, , ₹ 300, , Hard Copy, , ₹ 150, , ₹ 450, , Call or Whatsapp for Notes : 7627096162, Note : Paper 1 includes 7 units except Comprehensions, Numerical Reasoning, and Data Interpretation because these units are practice based and theoretical, part of these units is covered in notes., For hard copies postal/courier charges are separate.

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Introduction, , ❖ Michael E. Porter of Harvard University published in Harvard Business Review in 1979, ❖ Porter’s Five Forces Framework is a tool for analyzing competition of a business., ❖ These five forces determines the competitive intensity and, therefore, the attractiveness of an, industry in terms of profitability., ❖ Unattractive Industry having Pure Competition with normal profits., ❖ Microenvironment forces close to the company and affects ability to serve customers and make, profits, ❖ Firms applies their core competencies, business model or network to achieve a profit above the, industry average., ❖ Model includes three forces from Horizontal Competition and two forces from Verticle, Competition., ❖ The model is developed in reaction to the SWOT analysis.

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Porter’s Five Forces Model

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1. Threat of New Entrants, Profitability attracts new firms and leads to decrease in the profitability for other firms., Unless the entry of new firms is can be made difficult, the abnormal profits will fall towards zero., , Potential Factors to restrict the new entrants :-, , ❖ Government Policies (Sanctioned Monopolies), ❖ Capital Requirements, , ❖ Barriers to entry (IPRs), , ❖ Economies of Scale, , ❖ Product Differentiation, , ❖ Brand Equity, , ❖ Customer Loyalty, , ❖ Network Effect

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2. Threat of Substitutes, A substitute product uses a different technology to try to solve the same economic need., For Example :- Landlines and Cellular Phones, Airlines, Automobiles, Trains, and Ships etc., , Potential Factors :❖ Buyer’s Propensity to substitute and Brand Loyalty, ❖ Relatively Price Performance of Substitute, ❖ Perceived level of product differentiation, ❖ Buyer’s Switching Cost, ❖ No. of Close substitute available

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3. Industry Rivalry, For most industries the intensity of competitive rivalry is the major determinant of the competitiveness, of the industry. Positioning pertains to how the public perceives a product and distinguish it from, competitors. A business must be aware of its competitor’s marketing strategies, pricing and also be, reactive to any changes made., Potential Factors :❖ Sustainable Competitive Advantages, ❖ Innovations, ❖ Level of Advertising Expenses, ❖ Powerful Competitive Strategy, ❖ Firm Concentration ratio and control

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4. Bargaining Power of Buyers, Also called as the as market of output and, ability of customers to put the firm under pressure, which, also affects the customer’s sensitivity to price changes., Buyer’s power is high if buyers have many alternatives and low if few choices., Potential Factors :❖ Buyer’s Switching cost, ❖ Buyer’s Information Availability, ❖ Availability of Existing Substitutes, ❖ Differential Advantage, ❖ Customer Loyalty Programs

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5. Bargaining Power of Suppliers, Also called the as market of inputs. Suppliers of raw material, components, labor, and services to the, firm can be a source of power over the firm when there are few substitutes,, Supplier’s power is high if buyers have few alternatives and low if more choices., , Potential Factors :❖ Supplier Switching cost relative to firm, ❖ Employee Solidarity (e.g. Labor Unions), ❖ Availability of Substitute inputs, ❖ Supplier Competition

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Applications of the Model, The Porter’s Five Forces Framework is used for :-, , ❖ Qualitative Evaluation of a firm’s Strategic Position, ❖ Particular situation analysis, ❖ Line of Business Industry Level, ❖ SWOT analysis of business

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Criticism of the Model, Porter’s Framework has been challenged by other academics and strategists, Kevin P. Coyne and Somu Subramaniam claims that the three dubious assumptions underlie the five forces, , ❖ The buyers, competitors, and suppliers are unrelated and do not interact and collude, ❖ The source of value is structural advantage (creating barriers to entry), ❖ Line of Business Industry Level, ❖ Uncertainty is low, allowing participants in a market to plan for and respond to change, in competitive behavior.

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Conclusion, , Porter’s Five Forces Framework is a tool for analyzing, competition of a business. These five forces determines the, competitive intensity, profitability, industry environment., The model suggests the business to make competitive, strategies after observing the competition.

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