Porters five forces model
Companies use Porter’s model to develop strategies to increase their competitive edge. Porters model also demonstrates how IT can make a company more competitive. Porters’s model identifies five major forces that can endanger or enhance a company’s position in a given industry. The five forces in the model include: 1) Threat of entry of new competitors: Apple essentially dominates the consumer electronics industry. Apple puts a huge effort into R&D. Each and every one of the company’s products is very unique, even with respect to competitors, justifying that Apple has a very unique selling point.
The threat of entry is relatively low, due to the fact that Apple has found a way to continuously differentiate its products from its rivals. Apple also has such wide-spread production that it can produce at a lower cost due to its economies of scale. These reasons all contribute to Apple’s dominance in the industry with respect to new market entrants.
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2) Threat of rivalry: Apple also does not have to worry too much about the threat of rivals. This was not the case prior to the introduction of the iPod and iPhone.
Before the iPod and iPhone came along, most organizations within the consumer electronics industry put forth relentless efforts of R&D in order to introduce a product that was both new to the market and very unique. The problem for most organisations in this industry is that Apple had the most success with this before other firms. Once Apple introduced the iPod and iPhone, it quickly rose to the top and gained the advantage on rivals such as Samsung. Of course, it didn’t stop there for Apple, as the company continuously innovated and introduced new products to the market such as the iPad.
3) Threat of substitute products or services: It is evident that a simple smart phone could be viewed as a substitute to the iPhone, a simple mp3 player to the iPod, and a Samsung tablet to the iPad. Apple dominates in such great fashio because the company has achieved economies of scale, enabling it to produce at a lower cost, and Apple simply markets better than its competition. Apple’s brand equity and brand recognition is so high and well known that it further establishes an advantage over its substitute competitors.
It is true that there are substitutes readily available, but Apple has done such a phenomenal job marketing its products that its customer perceives its products to be better quality and better value to that of its competitors. 4) The bargaining power of suppliers: Considering that there are many organisations operating in the consumer electronics industry, organisations tend to be more elastic with respect to suppliers. If a given supplier were to increase its prices, an organization would likely seek out an alternative supplier, since there are so many firms within the industry.
It must be noted, however, that suppliers in this industry have some power with respect to what they are supplying. The fact that the suppliers are supplying unique and highly differentiated materials is what gives them such power. Their ability to supply such unique and differentiated materials gives the suppliers some bargaining power. 5) The bargaining power of customers: The threat of buyers, is really no threat to Apple. For starters, Apple has millions of buyers, some of which are large corporations.
Secondly, Apples products are both unique and differentiated, illustrating the power of buyers is lower. In this case, Apple does have the ability to increase its prices on some of its products because of the unique product offering and due to the fact that the majority of its products are well differentiated from the competition. It is important, however, for Apple to ensure that the price increase is not too drastic or some customers may begine seeking altenatives. Importance: Five Forces Model
Porters five forces model determine a company’s competitive environment, which affects profitability. The bargaining power of buyers and suppliers affect a small company’s ability to increase prices and manage costs, respectively. For example, if the same product is available from several suppliers, then buyers have bargaining power over each supplier. However, if there is only one supplier for a particular component, then that supplier has bargaining power over its customers. Low-entry barriers attract new competition, while high-entry barriers discourage it.