Unit 7.7 Competitive Environment

Question 1

What did Porter identify ?

Answer 1

• analysed the competitive environment of an industry and identified the five forces, as well as observing that the profitability of industries varied

Question 2

What are Porter‘s five forces?

Answer 2

• Bargaining power of suppliers
• Bargaining power of customers
• Threat of new entrants
• Threat of new substitutes
• Rivalry amongst existing businesses

Question 3

What is the Bargaining power of customers?

Answer 3

• customers having the ultimate power to push down prices and reduce profits for the business in the industry

Question 4

What is the bargaining power of suppliers?

Answer 4

• suppliers being powerful enough to push up their prices increasing their profits and reducing the profits for the business (due to higher costs)

Question 5

What are threat of new entrants ?

Answer 5

• if new businesses find it easy to enter an industry, profits will decrease within the industry

Question 6

What is threat if substitutes?

Answer 6

• a product that performs the same function as the one in the industry e.g. customer initially intending to purchase tea might want a coffee

Question 7

What are the rivalry amongst existing businesses ?

Answer 7

• intense rivalry suggests business compete on prices with each other and is likely to push prices down and reduce the profits of the businesses

Question 8

What are the impact of Porters five forces on strategic decisions?

Answer 8

• helps a business to understand the opportunities and threats in their industry and to understand the competitive position of a company
• knowing who the competition are and how that impacts the business is the key effective strategic decision making e.g. reactive not proactive decision