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Kajal wanted to start her own line of jewellery. She was a successful garment technician and an experienced hand in the garment industry but had little knowledge about the ornament market. She was unsure about demand and supply, competition and scope of profitability. Her partner, who had recently completed a program in networking, advised her to look into a Porter’s Five Forces model example to find out how conducive the market was for making profits. Using Porter’s 5 Forces analysis example, Kajal revised her objectives to expand her network before starting her new venture.
An organization must analyze the competition to meet its objectives and make profits. Porter’s Five Forces model is a framework to analyze the intensity of competition, the attractiveness of a market and the profitability in a given industry. A Porter’s Five Forces model example is especially useful if you’re planning to start a new business or looking to enter a new industry. An example of Porters Five Forces will show how this framework helps in analyzing the level of competition in a certain market.
Want to know more? Read on.
What Are The Porter’s Five Forces?
To analyze an industry in depth, executives must know the factors that influence it. A Porter’s Five Forces model example will show that competitive forces are not generated by competitors alone. Rather, they depend on five major forces. These are:
- Bargaining power of suppliers to control terms of services, quality and prices of goods. Reduced quality or higher prices will result in reduced profitability.
- Bargaining power of buyers for a particular product. The buyer is more likely to bargain if the product isn’t cheap or if there are several alternatives.
- The threat of new players entering a market and gaining market share.
- The threat of substitute products or services that can easily make a customer switch sides.
- Rivalry among existing competitors is an important force in any Porter’s Five Forces model example as more competitors mean more options for customers and greater rivalries.
A careful look at an example of Porters Five Forces reveals that this model can predict whether a customer will shift from an energy drink to coffee if it’s available for half the price!
Examples Of Porter’s Five Forces
This framework acts as a useful tool for managers of different organizations across various industries. Let’s take a look at these examples of the five forces analysis to find out how it can help in analyzing the competition, suppliers and customers:
1. Porter’s Five Forces example IATA
One example of Porters Five Forces is the Vision 2050 Report by the International Air Transport Association (IATA). The report shows how airlines make dismal profits while vendors and customers make significant gains. Airfares become cheaper, travel becomes safer and the quality of on-board products get better. The price of fuel fluctuates and is usually high. Price of maintenance goes up and other players tend to raise service costs at regular intervals. The five forces analysis in the report reveals details related to operating in the aviation industry.
2. Porter’s Five Forces example Uber
One more example of Porters Five Forces is the analysis of Uber. The analysis shows that the ride-hailing app’s customers enjoy high bargaining power, lower transaction costs and shorter waiting time. At the same time, competition is high as there are multiple players in the market and the customer is well-informed. It’s highly likely that a customer will book a different cab if demand and prices are high.
3. Porter’s Five Forces example Starbucks Coffee
With Porter’s Five Forces example Starbucks Coffee tracked the key characteristics of the industry competition. Starbucks faces stiff competition due to a large number of organizations in the market, moderate variety of products and high probability of customers switching. They have a smaller size of buyers and high prices, coupled with substitute products, which increase chances of customers switching. Using Porter’s Five Forces example Starbucks Coffee also evaluated the bargaining power of suppliers. They buy from different sources to avoid monopoly.
As you can see, an example of Porters Five Forces analysis can lay down the entire industry scenario. As a manager, business leader or marketing executive you must use Porter’s 5 Forces analysis example to determine whether a product or service will be profitable.
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Explore Harappa Diaries to learn more about topics such as Purpose of Porter’s Five Forces Model, How to do Industry And Competitive Analysis, How to reduce with Threat Of Substitution and Threat Of New Entrants to build strong professional networks.
