MICHAEL PORTER'S FIVE FORCES MODEL

is the useful tool to aid organization in challenging decision whether to join a new industry or industry segment.

tadaaa !!!!

BUYER POWER

• high - when buyer have many choices of whom to buy.
• low - when their choices are few.
• it to reduce buyer power and create competitive advantage.
• best practices of IT based on loyalty program in travel industry example reward.

the competitive environment 

bargaining power of customers

• customer can grow large and powerful.
• many choices of whom to buy from
• low when come to limited items
• example: tesco card

SUPPLIER POWER

• high - when buyer have a few choices
• low - when their choices are many.
• example : b2b marketplace 

THREAT OF SUBSTITUTE PRODUCTS & SERVICES

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Note that this should not be confused with competitors' similar products but entirely different ones instead. Contohnya la kan, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke's expense.

ting ting ting!!!

• 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.

• Substandard product

• Quality depreciation

TREAT OF A NEW ENTRANTS

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 (patent) 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
• Switching 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.

RIVALRY AMONG EXISTENCE COMPETITORS

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

• Sustainable competitive advantages through innovation
• Competition between online and offline companies
• Level of advertising expense
• Powerful competitive strategies
• Flexibility through customization, volume and variety

arigato kozaimas !