Porter's Five Forces

What is Porter's first name?

• Michael

• John

• Richard

• Simon

In Porter's Five Forces, the 'threat of new entrants' relates to:

• Barriers to entry

• Substitutes

• Switching costs

• Buyer power

Barriers to entry into an industry are likely to be high if:

• Switching costs are low

• Differentiation is low

• Requirement for economies of scale is high

• Access to distribution channels is high

Buyer power is high if:

• Differentiation is low

• Switching costs are low

• They have little information

• The buyer requires a high quality product for their own production

Competitive rivalry will be high if:

• The industry is fragmented

• There are a few strong players in the industry

• There is a high degree of differentiation

• The industry is in its infancy

A substitute product or service is:

• A competitor's product or service

• An alternative way of meeting the same need

• A new entrant into the industry

• A less attractive way of meeting the same need

Mike, an entrepreneur, is thinking about launching a new bottled water company. Is it a clear good move? He uses Porter’s Five Forces model to structure some analysis. You must state whether the power is WEAK or STRONG

BUYER POWER: First, Mike identifies the buyer. In this case, not the ultimate drinker, but the retailer. He finds that in his home country, 80% of sales by value are through one of four supermarket chains. The remaining 20% of sales are through hundreds of independent outlets. The buyer power is therefore

SUPPLIER POWER: Mike’s suppliers would include his workers, plastic bottle manufacturers and transport companies. As a water small operator, Mike realises that his suppliers will be parts of multinational companies.

The supplier power is therefore

COMPETITIVE RIVALRY: The bottled water market is very competitive, with more than 30 suppliers in the UK alone. Mike finds that 60% of the market is held by the three largest companies. However he also finds that the big retailers will stock smaller suppliers. The nature of the product means that consumers will switch very easily. Rivalry is therefore

THREAT OF NEW ENTRANTS: The level of competition suggests entry is relatively easy. However the launch costs are water relatively high and suppliers need to find a spring source for the product. The threat is currently