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
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.