Porter's Five Forces Model of Industry Competition

In this video we explore and explain Porter's Five Forces Model - an important and popular framework for assessing the nature of industry competition.

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Porter's generic strategies of low-cost and differentiation are introduced and explained in this essential video for business students.

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VIDEO CHAPTERS
0:00 Introduction
0:13 Porter's Five Forces
0:50 A recent essay / exam question
1:28 Porter's 5 Forces Model
2:24 Every industry is different
3:22 Industry profits vary
4:31 Summary for industry profits
5:54 Example: Soft drinks market = high industry profits
8:08 Threat of new entrants
8:49 Barriers to entry
13:22 Bargaining power of suppliers
14:14 Power of customers (buyers)
15:18 Threat of substitute products
16:49 Determinants of intensity of rivalry
18:32 Applying Porters Five Forces in an essay

KEY CONTENT SUMMARY

Porter's Five Forces is a model used to analyze the competitive forces in an industry, and is a tool used to identify the relative attractiveness of an industry. The model was developed by Michael Porter, a Harvard Business School professor, and is based on the following five forces:

Threat of new entrants: This refers to the ease with which new competitors can enter the market and begin competing. Factors that can impact this include economies of scale, the level of capital required to enter the market, and the presence of any barriers to entry such as patents or regulatory barriers.

Threat of substitute products or services: This refers to the extent to which substitute products or services are available in the market. If there are many substitutes, this can put downward pressure on prices and make it more difficult for companies in the industry to maintain their profits.

Bargaining power of buyers: This refers to the ability of customers to negotiate lower prices or better terms. If buyers are able to easily switch to substitutes or if they are able to negotiate effectively, this can put downward pressure on prices and profits.

Bargaining power of suppliers: This refers to the ability of suppliers to negotiate higher prices or better terms. If suppliers have a strong bargaining position, they can increase the cost of inputs for companies in the industry, which can reduce profits.

Competitive rivalry: This refers to the intensity of competition within the industry. Factors that can increase the level of competition include a large number of competitors, low differentiation among products or services, and high fixed costs.

Overall, Porter's Five Forces model is a useful tool for analyzing the competitiveness of an industry and for identifying the factors that can impact the profitability of firms within that industry.