Marketing - Porter's Five Forces

Business leaders commit significant resources to the challenge of determining their market strategy, and they are provided with numerous analytical models to help them accomplish this. Using these models helps decision makers to feel more comfortable in their choices because these models offer a formal framework through which analysis can be conducted. If the strategy that is chosen fails, the decision makers can point to the model and hold it at fault rather than choosing some other factor such as changing marketing conditions or having used the model incorrectly. To the extent that decision makers rely on these models, it is important that they continue to be relevant in today's turbulent economic and financial environments. Many of these models were developed many years ago and have not necessarily been updated to reflect the global economy, let alone take the Internet and other factors into account. This analysis considers one such analytical model, Porter's Five Forces, and whether the model is still relevant for today's strategic marketing decision makers.

Michael Porter developed his Five Forces model in the late 1970s while working at Harvard University (where he continues to teach today). Porter's model is based on industry structure and maintains that forces within each industry shape the performance and behavior of firms within it. At the same time, the behavior of firms within the industry change

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on how many firms are in the industry and the rate of industry growth. When growth is slow, companies must expand their market share by taking consumers away from the competition. Companies may also try to expand into new markets, whether by finding new uses for existing products, a move which can be imitated by the industry as a whole, or by entering new geographic markets. Also, when the product in question is not clearly differentiated (such as when there is low brand awareness), rivalry can be intense. Rivalry can also be intense in the situation when there are few competitors in the industry. This is the case in the commercial aircraft industry as well as in the automobile industry, where the small number of firms means that there is intense rivalry (Ford, Koutsky & Spiwak 2007). Power of Suppliers Suppliers can exert bargaining power on an industry by raising prices or reducing the quality or availability of goods. The power of key supplier groups depends on the market situation and on the importance of the suppliers' sales or purchase to the industry as a percentage of overall business. Typically, supplier groups are powerful when they are dominated by only a few companies and when the product is

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