Porter’s Five Forces for Business Analysis

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Porters Five Forces

Porter’s Five Forces for Business Analysis

 

When we talking about the Stock Market (Business) valuation, there are lot of tools to analyze it. We can simply put with the EIC (Economy Industry Company) framework by Top down approach, SWOT or preferring any business life cycle models. Still there is an attractive model recommended for the valuation of a business.

Porter’s Five Forces is a business tool that helping to analyze a company on its competition.

  1. Industry Rivalry
  2. Threat of New Entrants
  3. Threat of Substitutes
  4. Bargaining power of Buyers
  5. Bargaining power of Suppliers

 

Industry Rivalry: The Marketing strategy and pricing for the product which decides a company to be successful. The rivalry is an important one for any firm which goes through the market and dominate itself to be sustained. For the automobile industry, the competition would be very high and expected to increase even further.

Threat of New Entrants: New Entries are generally a threatening one for the existing companies. It may affect the profitability of an existing company, Even the changes in Government Policies would change the numbers in their revenue. So, ready to prevent on these threats would make a company on a better way.

Threat of Substitutes: Modern world gives an edge on every products or services. Every new on a same line of product makes as a Substitution, that reduce the prices to raise. You cannot go to the market directly with a high price, even had a required quality. Look out the technological opportunities to enhance your product by preventing from threats.

Bargaining Power of Buyers / Customers: Nowadays, the Customers are the deciding factor for any product. They have the ability to bargain the product or service on their consumer behavior. Availability of options on products or services will impact on price changes and reduce the profits. They are very informative on products.

Bargaining Power of Suppliers: Powerful Suppliers are the potential players in the market. They can demand on premium prices and limit the profit of a firm. Different prices on raw material, Presence of Substitute inputs, Services would impact on Suppliers to Companies.

Kindly share your views / comments with a smile 🙂

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