MYTUTOR SUBJECT ANSWERS

297 views

What are Porter's Five Forces and how are they used?

Michael Porter devised a framework called 'The Five Forces of competition' to classify and analyse the factors that determine the intensity and levels of competition in different industries.

The five forces include three sources of horizontal competition: competition from rivals already established in the industry, competition from substitute products and competition from potential new entrants in the industry; and two sources of vertical competition: the power of suppliers who provide the raw materials used by companies to produce their products and services and the power of buyers who decide to buy (or not) the companies' products.

Let's take the example of the chocolate industry and see how we can apply the Five Forces:

- rivalry among existing firms is High - there are many players in different segments of the industry, such as Mars, Mondelez International, Kraft, Ferrero, etc, so there is high competition.

- threat of new entrants is Low - there are already too many players in the industry and the capital requirements to enter would be high to acquire the necessary machinery and marketing power, this would mean low profit margins for new entrants, which would deter them from entering this industry.

- threat of substitutes is Medium - this threat depends on the importance consumers give to certain products and their ability/will of consumer to switch products. Even though I couldn't possibly substitute chocolate for anything else I know friends of mine could easily buy fruit or candy instead. This means this treat is only Medium for companies in the industry.

- the power of suppliers is High - the production of chocolate depends on one key ingredient (cocoa beans) that can't be found everywhere in the world, chocolate producers therefore depend on cocoa beans suppliers for their products, and should they go on strike, raise their prices or have a bad harvest season, the companies will suffer.

- the power of buyers is High - since the industry is so big and competitive and there are many buyers for chocolate products, most of whom are price sensitive and will switch from one brand to another if prices changes. Additionally, the more buyers there are the more bargaining power they have over the companies in the industry, forcing them to lower their prices or offer new products.

In conclusion, the five forces are 3 High, 1 Medium and 1 Low, so the chocolate industry can be considered to be Highly competitive.

See how easy this was? You have just used the Five Forces!

Want to try using them for an industry that you are passionate about and test your new-found skills?

Lonie S. IB Business Studies tutor, GCSE Business Studies tutor, A Le...

9 months ago

Answered by Lonie, an A Level Business Studies tutor with MyTutor


Still stuck? Get one-to-one help from a personally interviewed subject specialist

7 SUBJECT SPECIALISTS

£20 /hr

Harry C.

Degree: Business & Management (Bachelors) - Exeter University

Subjects offered: Business Studies, -Personal Statements-

Business Studies
-Personal Statements-

“Hello! I'm Harry and I am currently studying a Business & Management degree at The University of Exeter. My friends would describe me as friendly and patient. I want to help you to do the very best you possibly can! During our tutorial...”

MyTutor guarantee

£20 /hr

Yasmin A.

Degree: Business Economics (Bachelors) - Exeter University

Subjects offered: Business Studies, Economics

Business Studies
Economics

“Top tutor from the renowned Russell university group, ready to help you improve your grades.”

£20 /hr

Emily P.

Degree: International Business with Spanish (Bachelors) - Newcastle University

Subjects offered: Business Studies

Business Studies

“About Me I am a student at Newcastle University studying International Business with Spanish. I am currently on my year abroad, studying in Barcelona for the first term and then undergoing a marketing placement in Seville. I have alw...”

MyTutor guarantee

About the author

Lonie S.

Currently unavailable: for new students

Degree: MSc International Business and Emerging Markets (Masters) - St. Andrews Unversity University

Subjects offered: Business Studies, French

Business Studies
French

“About me:  I am an International Business Master student at the University of Edinburgh and have just graduated from my Bachelor in Management with First Class Honours in June 2015. I have had experience of teaching and tutoring at pr...”

You may also like...

Posts by Lonie

How can I use the Imperative?

What are Porter's Five Forces and how are they used?

What is the Triple Bottom line?

Other A Level Business Studies questions

What are the benefits of innovation within a business?

What are Porter's Five Forces and how are they used?

how many users are invoked in business meeting?

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

View A Level Business Studies tutors

Cookies:

We use cookies to improve our service. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok