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Porters 5 Force Analysis

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Porters 5 Force Analysis

1. Threat of New Entrants - The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Existing loyalty to major brands

o Incentives for using a particular buyer (such as frequent shopper programs)

o High fixed costs

o Scarcity of resources

o High costs of switching companies

o Government restrictions or legislation

o If substitutes are similar, it can be viewed in the same light as a new entrant.

2. Power of Suppliers - This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company's margins and volumes, then it holds substantial power

o There are very few suppliers of a particular product

o There are no substitutes

o Switching to another (competitive) product is very costly

o The product is extremely important to buyers - can't do without it

o The supplying industry has a higher profitability than the buying industry

3. Power of Buyers - This is how much pressure customers can place on a business . If one customer has a large enough impact to affect a company's margins and volumes, then the customer hold substantial power. Here are a few reasons that customers might have power:

o Small number of buyers

o Purchases large volumes

o Switching to another (competitive) product is simple

o The product is not extremely important to buyers; they can do without the product for a period

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