Background
   Michael Porter developed a method by which a business can 
   analyse the competitive environment in which it operates in 
   order to best devise its strategy. 
   Basically: know your competitors and how to beat them.
   Philip Allan Publishers © 2016
   Concept
   Porter suggests that firms need to analyse five factors within 
   an industry in order to understand the market. This will help 
   the management understand the level of competition.
   ‘The five forces will provide information that can be used  to 
   help devise an appropriate business strategy’ (Michael Porter, 
   competitive advantage) 
   Philip Allan Publishers © 2016
   Porter’s five forces
   Porter believes that the overall strength or weakness of a 
   firm’s position depends on five forces:
   ① degree of rivalry
   ② threat of new entrants
   ③ threat of substitutes
   ④ bargaining power of buyers
   ⑤ bargaining power of suppliers
   Philip Allan Publishers © 2016
   Degree of rivalry
   The more intense the rivalry between existing firms within the 
   industry, the more likely that prices are forced down by 
   competitive pressure. A number of potential strategies are 
   available to firms in order to reduce the rivalry, for example:
   Develop a differentiated product, e.g. Dyson.
   Acquire competitors via mergers and takeovers.
   Push to be a market leader via internal growth, e.g. Tesco. 
      This is very difficult to maintain in the long run.
   Philip Allan Publishers © 2016
   Threat of new entrants
   If new entrants move into an industry, they will gain market 
   share & rivalry will intensify.
   The position of existing firms is stronger if there are barriers to 
   entering the market. If barriers to entry are low then the 
   threat of new entrants will be high, and vice versa.
   Barriers to entry are, therefore, very important in determining 
   the threat of new entrants. An industry can have one or more 
   barriers.
   Philip Allan Publishers © 2016