Porter's 5 forces.

Expansion to Porter's 5 Forces Model

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WHAT ARE THE PORTER'S 5 FORCES?

The 5 forces of Porter are a tool that will allow us to make an external analysis of the industry to which we are referring, thanks to this tool can formulate strategies with the objective of seizing opportunities and have identified the threats that were detected.

The first force is the threat of new entrants, which is used in the industry to detect companies that have similar products or services in the market, and also analyzes how easy it is to enter the industry (entry barriers).

The second force is the bargaining power of suppliers, it allows us to analyze how much influence suppliers have on the industry, the more power they have, they can increase prices or be less concessive, but if they do not have much power, Greater control over them, reducing their bargaining power and obtaining favorable conditions for the industry.

The third force is the threat of substitute products or services, it refers to the products in the market that satisfy the same need or desire as our product or service, since the market may prefer those products or services taking us off the market. Analyze how to create strategies to compete with them and be better, you can increase the quality, reduce the price, increase the sales channels, etc.

The fourth force is the bargaining power of customers, it refers to the power with which consumers can obtain a good price and condition, while there is a smaller number of buyers the greater their bargaining power, the same way if there are many Substitutes in the market can be risky for companies as they must be more competitive to survive.

Finally, rivalry between competitors, refers to companies that compete within the same industry, offer the same product or service, and is characterized by the confrontation of competitors where both use business strategies, in addition to everything the company does to make your product or service be highlighted and the best of the market.

Analyzing these forces mainly allows us to determine the degree of competition that exists in the industry, so that we can know how attractive it is, as well as detect opportunities and threats, and thus be able to develop strategies that allow us to take advantage of such opportunities and / or deal with such threats.

HOW DO THESE AFFECT THE LIKELYHOOD OF ECONOMIC PROFITS IN AN INDUSTRY?

These forces affect the economic profits of an industry since these are the ones that will define the strategies that the company must use to be competitive, what it must do to create barriers of entry for new competitors or how to differentiate its product so that it is not so easy to find a substitute.

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