INSTRUCTIONS: Please RESPOND to this answer from the Point of view as a student. Use credible sources and respond as if you are a manager of a marketing agency. Tell this student what your marketing agency would think of each of these answers from a Management perspective:
Porter’s five forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you’re considering moving into.
Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are (Porter’s Five Forces, n.d.)
- Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers’ help, the more powerful your suppliers are.
- Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
- Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you’ll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don’t get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.
- Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.
- Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
My friend is trying to switch from full time job to owning a consulting business in Information technology field. So based on the above, I have prepared Five Forces Analysis as below.
Threat of new entry
·Not too expensive to enter the industry
·Experience needed but lot of resources for training available
·Low barriers to entry
·Entry quite easy
·Moderate number of suppliers
·Able to change
·Able to substitute
·Large organizations provide consulting
·Very large orders
·Extreme price sensitivity
·Ability to substitute
·High buying power
Threat of substitution
·Ability to outsource overseas
·Cheaper labor available which can be substituted for consultants
·Low switching costs
·Low customer loyalty
·Moderate to high costs of leaving market
As you can see since threats of entry is high since any one can come into industry easily which in turn, reduces profit. Intense competition puts strong downward pressure on prices. Buyer Power is strong, again implying strong downward pressure on prices. After looking at the above scenario, I would recommend she either stay in job market or find some other business.
1) 1) Porter’s Five Forces – Strategy Tools from MindTools.com. (n.d.). Retrieved October 23, 2016, from https://www.mindtools.com/pages/article/newTMC_08….