Porter's Five Forces Model of Competition

      The evolution of marketing concepts is a ways that explains the dramatic change the marketing sectors has seen in the last century. As explained earlier, the focus of marketing has now shifted from product and selling to the customers. Competition among the firm is intense with focus now on innovation and successful customer relationship. In this scenario, marketing has become a very tough job these days. Every marketer is facing challenges in today's era.  

      Michael E porter, a professor in Harvard Business School introduced Porter's Five Forces Model. Porter's Five Forces model is a framework that analyzes the level of competition. 

Michael Porter has identified five marketing challenges of the firm's competitive position:

                                    Fig: Porter's Five Forces Model of Competition.

Above figure is explained below in brief:

1. Threats of Entrants:

 A company's power is also affected by the force of new entrants into its market. The less time and money it costs for a competitor to enter a company's market and be an effective competitor, the more an established company's position could be significantly weakened.

An industry with strong barriers to entry is ideal for existing companies within that industry since the company would be able to charge higher prices and negotiate better terms.

2. Barganing power of suppliers:

 The next factor in the Porter model addresses how easily suppliers can drive up the cost of inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a company to switch to another supplier. The fewer suppliers to an industry, the more a company would depend on a supplier.

As a result, the supplier has more power and can drive up input costs and push for other advantages in trade. On the other hand, when there are many suppliers or low switching costs between rival suppliers, a company can keep its input costs lower and enhance its profits.

3. Barganing Power of customer: 

The ability that customers have to drive prices lower or their level of power is one of the Five Forces. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a company to find new customers or markets for its output.

A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals. A company that has many, smaller, independent customers will have an easier time charging higher prices to increase profitability.

4. Threats of Alternatives:

 Substitute goods or services that can be used in place of a company's products or services pose a threat. Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favorable terms. When close substitutes are available, customers will have the option to forgo buying a company's product, and a company's power can be weakened.