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What are Porter's 5 forces and how they help the business?

Power of supplier- How high the supplier's ability is to increase prices, which is determined by how many other companies they supply, as well as the uniqueness of the product. If there are fewer suppliers, then their power is likely to be greater.

Power of buyer-  How high the buyer's ability is to decrease the price paid for a product. This will be influenced by the number of buyers,and the size of the buyer (for example, it would be better to lower the price of a product slightly for one buyer if they were a customer which bought a large quantity of products, than to lose them altogether)

Threat of subsitution- this is how easily customers can find an alternative to your product. If it is easy to substitute your product, then it is easy to lose customers.

Threat of new entry- How easy it is to enter the market in order to compete. If it is easy and cheap to set up a similar business, or if any technology is no longer protected, then it is likely that someone will entre the market.

Competitive rivalry- This measures the number of competitors and also their power and ability. If no other company can make your products in the same way, to the same quality, then you have more control (a good example of this is apple). If competitors have similar products, then pricing may make a customer go elsewhere.

Natalie H. A Level Business Studies tutor, GCSE Business Studies tuto...

2 years ago

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