Question

Define Porter's Five Forces Model in your own words, List down its forces and briefly explain.
Furthermore, how to apply the Porter’s five Forces model to your SME marketing plan.

Answer 1

What are Porter's five forces model:-

Porter's Five forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths.Five industry's weakness and strengths. Five forces analysis is frequently used to identify an industry's structure to determine corporate strategy. Porter's model can be applied to any segment of theecocnomy to understand the level of competiion within the industry and enhance a company's long term profitability.

Five forces model was created by M porter in 1979 to unerstand how five key competitive forces are affecting an industry. The five forces identified are:-

1. Threat of entry
2. Bargaining power of supplliers
3. Industry rivalry
4. Bargaining power of buyers
5. Threat of substitutes

1.Threat of entry:- This force determines how easy or not it is to enter a particular industry. If an industryis profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations compete for the same market share, profits start to fall. It is essential for existing organizations to create high barriers to enter to deter new entrants.

2. Bargaining power of suppliers.:-Strong bargaining power allows suppliers to sesll higher priced or low quality raw materials to their buyers. This directly affects the bying firms' profits because it has to pay more for materials.

3. Bargaining power of buyers:- Buyers have the power to demand lower price or higher product quality from industry producers when their bargaining power is strong. Lower price means lower revenues for the producer, while higher quality products usually raisse production costs. Both scenarios result in lower profits forproduces.

4. Threat of substitutes:- This force is especially threatening when buyers can easily find substitute products with attractive prices or bettr quality and when buyers an nswitch form one product or service to another with little cocst. For example, to switch from coffee to tea doesn't cost anything, unlike switching from car to bicycle.

5. Rivalry among existing competitors:- This force is the major determinant on how comopetitive and profitable an industry is. In competitive industry firms have to compete aggressively for a market share, which results in low profits.

How can SMEs apply the porter's 5 forces model in thier marketing planning:-

If your environmental scanning has led you to think about moving into new sectors, orre evaluating your proposition, then applying porter's 5 forces in your marketing plan enables you to see the situation at hand clearly.

After all, 84% of marketers confirmed they have "improvised to generate new marketing strategies during the pandemic", and by getting your 5 forces into balance you can focus your marketing plan on generating vaue on the terms that are right for you. So work through each of the forces to identify who has the power in different scenarious across each industry you work in, and immcorporate your findings into your marketing action plan.

Here are some examples of where the balance of power lies during a recession:-

• competitive rivalry:- These include estate agents, web design, and office stationery. Many competitors often buy on price. There are many providers of very similar products, meaning that differences should be highlighted, and prices must be competitive.
• Threat of substitute products:-The substitute for all services in DIY. For example,anyone can cut their ownhair or write their own will, but maby people spend money toenlist the services of an experienced professional to deliver a level of service greater than they can provide themseslves. Focus on expertise, customer service and added value your company can use to distinguish itself.