According to Michael Porter's ground breaking 1979 theory, there are 5 forces that influence a firm's competitive strategy. Four forces -- the bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, and the threat of substitute products -- combine with other variables to influence a fifth force, the level of competition in an industry. Each of these forces has several determinants:
- The bargaining power of customers
- buyer concentration to firm concentration ratio
- bargaining leverage
- buyer volume
- buyer switching costs relative to firm switching costs
- buyer information availability
- ability to backward integrate
- availability of existing substitute products
- buyer price sensitivity
- price of total purchase
- The bargaining power of suppliers
- supplier switching costs relative to firm switching costs
- degree of differentiation of inputs
- presence of substitute inputs
- supplier concentration to firm concentration ratio
- threat of foward integration by suppliers relative to the threat of backward integration by firms
- cost of inputs relative to selling price of the product
- importance of volume to supplier
- The threat of new entrants
- the existence of barriers to entry
- economies of scale
- proprietary product differences
- brand equity
- switching costs
- capital requirements
- access to distribution
- absolute cost advantages
- learning curve advantages
- expected retaliation
- government policies
- The threat of substitute products
- buyer propensity to substitute
- relative price performance of substitutes
- buyer switching costs
- perceived level of product differentiation
- The intensity of competitive rivalry
- power of buyers
- power of suppliers
- threat of new entrants
- threat of substitute products
- industrial growth
- industry overcapacity
- exit barriers
- diversity of competitors
- informational complexity and asymetry
- brand equity
- fixed cost allocation per value added
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2 Lists of related topics 3 Further reading |
See also
Lists of related topics
Further reading