Porter Five Model: Assessing Market Attractiveness

How do you decide on what industry to venture in? What factors do you look at when starting business operation? The first think an investor or entrepreneur must do is to assess the attractiveness of the market. Markets factors render the market either attractive or unattractive. The porters five model is the framework that is used to assess the attractiveness of markets.

1.         Intensity of rivalry
This is the degree of competition among industry players. If an industry has numerous competitors, you are likely not to have a huge impact on the industry. To reach your full potential, identify industries that have minimal competition. Operating in a market without competition gives you ultimate power in the market.
2.         Threats of new entrants
The threat of new comers is determined by market entrance and exit barriers. New entrants weaken your market power. Markets with high barrier to entry and low exits barrier are considered attractive. Markets with low entry barrier are unattractive. The barriers to entry include the cost of technology, brand switching, economies of scale and high capital requirements.
3.         Threat of substitutes
This denotes the ease with which customer can switch to products offered by competitors. The threat is high when numerous substitute goods are offered, competitors products of superior quality and if substitutes goods are cheaper. Presence of many substitutes makes the market unattractive.
4.         Buyers bargaining power
The buyer bargaining power show the level of control they have over market prices. Few buyers have major control over market prices. Markets where buyers dictate prices are unattractive because the seller could operate at a loss as they have no say over prices.
5.         Supplier bargaining power
The strength of supplier in the market is also an important factor to consider. The number of suppliers and, cost of switching and uniqueness of products affects the degree of control suppliers has over the market
Porters Model










New entrants
-Capital requirements
-Switching cost
-Distribution channels
-Economies of scale
-Cost of technology


Product differentiation
Government policies
 


Power of suppliers
-Concentration of suppliers
-Product uniqueness
-Switching cost
-Supplier size

 


Buyer power
Brand switching cost
Number of buyers
Price variations
Availability of substitutes

Presence of substitutes
 


Threat of substitutes
-Performance of substitutes
-Inclination of buyers to substitutes
- Availability of substitute inputs

Price variations

 


Intensity of rivalry
-Number of competitors
-Level of differentiation
-Product differentiation
-Quality of services
-Ease of switching
 

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