What Is Porter's Five Forces Model And Its Advantages?

Management is the new thing out there. After all analysis, the world has concluded running any and every organization no matter the speciality of the organization, every organization’s success rate boils won to the management of the organization. This has been realized by universities and colleges and schools. No wonder nowadays business and economics basics are taught even to high school goers. Yes, understanding management is important but management is not just anyone’s cup of tea. The ones who manage everything must be better than everyone else.

Management like every other subject is based on many theories. One of the important theories is Porter’s s five forces model. One of the very basic theories and fun to understand and then apply to real-life situations. So, what is it? Read the blog to find out yourself!!!

What Is Porter's Five Forces Model?

Every business runs in the hopes of market availability and threatened by the competition. That is exactly what porter’s five model studies. Porter’s five models are the framework to analyze the threats in the industry. This model was the brainchild of  M.Porter who gave this idea in 1979.

As per this model, competition in an industry is based on five aspects or forces.

1. The threat that new competitors will enter.
2. The bargaining capacity of the suppliers.
3. The bargaining capacity of buyers.
4. The threat of competitive products available in the market.
5. The already existing stalwarts of the industry.

What Is The Purpose Of Michael Porter's Five Forces Model?

Porter's five forces model example ascertains the risks involved in the business. This model has helped us to have an insight in ascertaining why some industries succeed over others in the market. Additionally, porter's five forces model is used to evaluate an organization's ways and means to avoid risks to attain maximum profitability.  The five characteristics or markers help in testing the competition, attractiveness, and profitability of the market.

Why Is Porter's Five Forces Model Useful In The Competitive Analysis?

If we talk about the advantages and disadvantages of Porter’s five forces model, it is a simple but useful model to ascertain the positioning of the market. Once this model is applied diligently and practically with the right tools, this model is very pertinent in determining the success of one’s business.

The use of Porter's five models has changed a lot since this model was first given by Harvard Professor, M. Porter in 1979. Initially, this model was used by the businessmen to ascertain the competition and the profitability in the market. But with time, this changed to more complex use of the model.

The usage and application of Porter's five models expanded with the expansion in the subject of business management. With the advent of marketing, strategy, operations, finance, etc, Porter's five models were put to use and applied in these areas as well. Now, Porter's model is used to ascertain the trends of markets in different situations and how specific industries are performing in the given circumstances. Knowing the kind of competition that is prevalent in the industry a market serves as a guide to the investor on what steps an investor should take and avoid. Studying current trends and the assistance by experts help the current businessmen realize what steps would help them to gain more customers and to remain stable in the market. E.g., an investor has to set up a new start-up.

Before doing so, all one can do is to use porters five forces model, to look into the competition and the threats and attractions in the market. If the market is too saturated and there are market biggies with whom it would be difficult to compete, then the businessman can avoid that market. The second scenario can be when an already established businessman wants to know the position of the market so that he can analyze the market position of his own business and come up with new policies for his own business.

Let Us Explain Porter’s Five Forces Model Aspects for Your Perusal and Understanding

1. Industry completion- Once you decide to set up your own business, it is important to test the waters and analyze the different players in the market. The competitors will give you an idea of what to expect from a market. Which products and services have more demand and thus more competition. What specifications do the products of the rivals have and what new can you introduce to get an edge in the market.
2. Knowing the potential offering of the new entrants - The businessmen who are already in the market, indeed to know their potential threats especially the new ones. Once a businessman knows the new entrants in the market, the businessman will get an idea about deciding factors like the price of the products, specifications of the product, etc. consequently, the businessman can determine how are certain products to be priced and which products are to be produced more and which are to be reduced in production.
3. Bargaining capacity of suppliers- Knowing where to get the raw material for your supplies is an important attribute to stay in the market. The costs need to be minimized for getting maximum profit. Sometimes the cost of suppliers needs to be balanced just to ensure that the costs do not outrun the profits.
4. Bargaining capacity of the customers- It is essential to study the psyche of the ultimate buyer of the product. If the ultimate consumer can reduce the market price either due to the availability of the product somewhere else or due to the availability of better quality or availability of options to chose from, then the market price is to be determined as per the consumer's capability to bargain.
5. The threat of alternative products- The worst thing for a business is the entry of a similar product at a cheaper price or better quality. If the demand for this product grows, then it is best to switch to make changes to the product or switch the product altogether.

This was an insight into Porter’s 5 forces models. Hopefully, you could make out the application of the Porter model and got conceptual clarity on how different aspects affect the market profitability and availability and how they can be modified to invest better.

So, did you find this blog informative with a bit more thrust on the application part without it being overbearing? For more amazing information on management and the various models of management, keep visiting our blogs.

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