What Is the Five Forces Model?

The Porter Five Force Model was proposed by Michael Porter in the early 1980s. He believes that there are five forces in the industry that determine the scale and degree of competition. These five forces collectively affect the attractiveness of the industry and the competitive strategic decisions of existing companies. The five forces are the competitiveness of existing competitors in the industry, the ability of potential competitors to enter, the substitute ability of substitutes, the bargaining power of suppliers, and the bargaining power of buyers.

Porter Five Force Model

Potter

In a sense, it belongs to the micro analysis of the external environment analysis method. The Porter Five Forces Model is used for the analysis of competitive strategy, which can effectively analyze the customer's competitive environment. Porter's "Five Forces" analysis method is a static cross-sectional scan of the profitability and attractiveness of an industry, which illustrates the average profitability of enterprises in the industry, so this is an indicator of the industrial situation, not an enterprise A measure of capacity. Generally, this analysis method can also be used to analyze entrepreneurial capabilities to reveal what kind of profit space the company has in its industry or industry.

Supplier bargaining power

The supplier mainly affects the profitability and product competitiveness of existing enterprises in the industry through its ability to increase input factor prices and reduce unit value quality. The strength of the supplier mainly depends on what input factors they provide to the buyer. When the value of the input elements provided by the supplier constitutes a large proportion of the total cost of the buyer's product, it is very important to the buyer's product production process, or When the quality of the buyer's product is seriously affected, the potential bargaining power of the supplier against the buyer is greatly enhanced. Generally speaking, a supplier group that meets the following conditions will have a relatively strong bargaining power:

1. The supplier industry is controlled by some companies with a relatively stable market position and not subject to fierce competition in the market. There are many buyers of their products, so that every single buyer cannot become an important customer of the supplier.

2. Each supplier's products have certain characteristics, which makes it difficult for buyers to convert or the conversion cost is too high, or it is difficult to find alternatives that can compete with the supplier's products.

3. The supplier can easily implement forward integration or integration, while the buyer can hardly implement backward integration or integration. (Note: Simply speaking in Chinese, the shop is bullying)

Buyer's bargaining power

Buyers mainly influence the profitability of existing enterprises in the industry through their ability to lower prices and require higher quality of products or services. The influence of its buyers' bargaining power is mainly due to the following reasons:

1. The total number of buyers is small, and each buyer's purchase is large, which accounts for a large proportion of the seller's sales.

2. The seller industry consists of a large number of relatively small companies.

3.The purchaser is basically a kind of

There have been many arguments about the practical application of the five force analysis model. A more consistent view is that the model is more of a theoretical thinking tool than a practical strategic tool. The theory of the model is based on the following three assumptions:

1. Strategy makers need to understand the information of the entire industry, which is obviously difficult to achieve in reality.

2. There is only competition and no cooperation between the same industry. However, in reality, there are many kinds of cooperative relationships between companies, which are not necessarily competitive relationships.

3. The scale of the industry is fixed. Therefore, only by capturing the share of opponents, the larger resources and market can be occupied. But in reality, companies often get bigger resources and markets not by eating rivals but by making bigger industry cakes together. At the same time, the market can increase capacity through continuous development and innovation.

Michael Porter's main contribution to management theory is to build a bridge between industrial economics and management. The significance of Porter's competitiveness model is that three types of successful strategic ideas are contained in the five types of competition, that is, total cost leading strategy, differentiation strategy, and concentration strategy.