The Five Forces Model

Competitors can be viewed in different ways. The Meso analysis is one of them. The meso analysis examines the business column. Michael Porter created the five forces model. This looks at the five external dangers. The five forces are: The power of suppliers, the power of buyers, substitutes, threat of new entrants, threat of internal competition.

Five forces

When an analysis is made of the business column, Porter’s five forces model is used. A company must ensure that it does not become dependent on one of the forces. It must also ensure that they are not outdone by the competition.

Supplier power

If the power of suppliers is great, it is bad for the company. The supplier can more easily increase prices, the company has little choice. They have to buy the products. The power of suppliers is based on six factors.

Quantity of suppliers

If there are many suppliers, the company has little to worry about. In the event of threats from the supplier, the company can switch to another supplier. So if there are many suppliers then the supplier will give power to the company, because the supplier is vulnerable.

Quantity of substitutes

The more substitutes the better for the company. If the supplier threatens with price increases or the like, the company can opt for another product that meets the same need.

Importance of industry for suppliers

If the supplier makes a lot of profit from the industry in which it operates, it will be more careful about retaining customers.

Switching costs

If the switching costs are high, the company will not quickly look for another customer because it costs a lot of money. This allows the supplier to exercise a lot of power.

Standardization of product

If a product is standardized, the customer is less likely to switch. Standardization of a product means that a product is used as standard in society. Just like Microsoft Windows. Everyone uses this and no one will switch to another operating system.

Possibility of vertical integration

This indicates how easy it is for a supplier to sell the product to the buyer. The company will lose customers as a result and will have to look for a new supplier.

Power of buyers

If the power of the buyers is high, just like the power of the suppliers, then that is bad for a company. Buyers can agree with each other to pit the competition against each other.

Substitutes

Substitutes are other goods that meet consumer needs. An example is the Walkman. A Walkman is used to listen to music. But later came the MP-3, which also meets the need for listening to music. You can delete and add music to an MP3. While with a Walkman you need a cassette. What a company must do is innovate.

Threat of new entrants

Newcomers to the market strive for market share. When new companies enter the market, prices drop. Whether the prices of the current companies can rise, this is negative for profits. The likelihood of new entrants coming depends on various factors. Consider entry barriers, hygiene, etc.

Threat of internal competition

If there is a lot of competition in the market, it will probably be an attractive market. The company must ensure that they distinguish themselves, this will get them more customers and increase profits.