Porter’s Competitive Forces Model

It’s quite understandable to all of us that organization is affected by its surroundings and the environment in which it resides. Environment may include social and physical environment like financial resources, human resources, community, people etc. there is also a legal environment, some legal obligation organization have to comply with. Then how can we forget the competitors who are one of the most important external environmental factors. You can not compete with your competitors or external environmental factors unless you have a competitive edge over your competitors. Your success lies in the uniqueness of your organization.
So here keeping in context with above discussion I am going to explain you Michael Poter’s Competitive Forces Model. This model provides general view of firm’s competitors and its environment in comprehensive manner. Here are five competitive forces that shape the fate of the firm:

Traditional Competitors:

            You know when you are working in business environment there are number of competitors who are challenging you by devising new projects, imposing costs, providing extra services, attracting customers by different means and developing new brands. These factors can be competitive advantage as well. These are your traditional competitors who already exist with you in the business and compete with you.
            For instance, Pizza hut and Domino’s are competitors to each other. They will always try to acquire more market share. For this purpose they will use different strategies, they may introduce new flavor, open new outlet, more friendly services etc.
The one who will have competitive edge in any form will get the lead.

New Market Entrants:

            It’s a common practice that whenever there is an entry of new brand or store around us, we want to go there and test there products or services and if we like those then we try to use those regularly. So these new entrants are one more competition to already existing organizations in the industry. Well if you are a new market entrant, you can get easy entry to industry of like pizza, restaurant, retail etc. But if you want to enter in a complex industry like of silicon chip, airplanes etc your entry is not easy because it involves high level of expertise, knowledge and capital as well. So new entrants are also a threat or competition to existing organizations.

            As a new entrant you may several advantages like new machinery and equipments, fresh and young employees who may be more innovative, new brands and high motivations etc. so if you hold these advantages then you have chances of success in the industry. But to handle everything smartly is very important. Because if you are not careful and conscious then your strengths can be turned into your weaknesses. For instance you acquired a loan for latest equipments, this can be expensive for you, your young workforce may not be very experienced and you will be having little brand recognition. So your strategies must be devised keeping everything in view.

For instance newly opened Hardees is getting more and more customer attraction in Lahore.

Substitute Products and Services:
When we are unsatisfied from our current product or service, first thing comes to our mind is a substitute. So these substitutes are a big threat and competition to organizations.
For instance, CNG is the substitute of petrol; ethanol, vegetable oil, wind, solar, coal and hydro power are substitute of oil; Mobile phone is substitute of land line; fiber optic telephone lines are substitute of cable TV lines etc.
The more substitute products and services in your industry, the less you can control pricing and lower your profit margins.

Customers are very powerful. Organizations try to retain their customers. Because it is very easy for a customer to switch to competitors product when they are well educated regarding industry. So organization needs to be smart enough to create such competitive strategies so they can retain their customers. In transparent market, customers are aware of pricing, costs, quality and value of product or services.
For instance, in used college book text market, students can contact multiple suppliers for that. And they can compare prices. So in this case students have power over firms.

The market power of suppliers can have a significant impact on firm profits, especially when the firm cannot raise prices as fast as can suppliers. The more different suppliers a firm has, the greater control it can exercise over suppliers in term of price, quality and delivery schedules.
For instance, manufacturers of laptop PCs almost always have multiple competing suppliers of key components, such as key boards, hard drives, and display screens.


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