Five Forces Model – Explained

Five Forces Model
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Five Forces Model

Five Forces Model
Five Forces Model


Threat of new entrants

New entrants will decrease profit margins.  The will create their market share and leave others with low profit margins.  Entrance of new competitors will depend on barriers to the industry.  These barriers include fixed cost and capital requirements.  If there are high fixed costs and high capital requirements less entrance will be track towards the market


Existing competitors

Competition in the market depends upon the profit margins in the market and the market growth.

  • If there are higher profit margins in the market this will lead to or high rivalry in the market and vice versa
  • If the market growth is high , this will keep the competition in the market high and vice versa


Threat of substitute products

If multiplier substitutes of  company product exist  in the market that is difficult to increase prices without taking customers into confidence.  Substitutes of the product can be a direct substitutes and in direct substitutes.  Direct Substitutes provide same replacement as that of the company product while indirect substitute  is product  from the different  industry fulfilling  the same needs.


Bargaining power of suppliers

Bargaining power of  suppliers within be high when there are many as the number of suppliers in the market and by switching cost of industry is high


Bargaining power of customers

Product differentiation keeps  bargaining power of customers low.  Lack of product differentiation will urge  customer to demand low prices of the product.