1.6 Porter's Five Forces

Question 1

Porter’s Five Forces

Answer 1

1. Threat of new entrants
2. Bargaining Power of Customers
3. Bargaining Power of Suppliers
4. Threat of Substitute Products/Services
5. Rivalry Among Existing Competitors

Question 2

Threat of New Entrants

Answer 2

• The degree of threat is based on how high the barriers of entry are for entering that market
• New companies entering
• Existing companies entering a different segment
• Information Systems overcame high capital start-up costs ie. Amazon

Question 3

Bargaining Power of Customers

Answer 3

• can customers obtain favourable terms?
• degree of price sensitivity
• when the cost of switching from one company to another, buyer has power & price sensitivity plays a role
• Companies based online can pass along savings of not having to pay to maintain physical stores
• Smartphones have allowed more customer power (can compare prices from anywhere)
• Websites also influence customers

Question 4

Bargaining Power of Suppliers

Answer 4

• if switching costs are low, suppliers have less power
• eBay has resulted in more suppliers, reducing power
• “Mass customization” using scale efficiencies to mass produce products that meet individual needs
• IT gives a competitive advantage for small businesses to compete with Amazon because they service niche markets using the internet, reaching lots of people

Question 5

Threat of Substitutes

Answer 5

• the degree to which products are interchangeable ie. Uber

- IT has disrupted traditional markets by providing substitutes

Question 6

Rivalry Among Existing Competitors

Answer 6

• a shrinking market can only increase market share by taking it away from others
• many industries use complex CRM systems to retain customers ie. Loyalty Programs