Running Head: STRATEGIC PRINCIPLES – POTRER’S FIVE FORCES MODELS
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STRATEGIC PRINCIPLES – POTRER’S FIVE FORCES MODELS
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Strategic Principles – Porter’s Five Forces model
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The Porter’s Five Forces model is not deliberated as an outdated strategic analysis tool for the present hospitality industry. The Porter’s model is a beneficial tool and a powerful for comprehending where power lies in a business condition. The Porter’s Five Forces tool is suitable since it aids people to comprehend both the strength of their contemporary competitive position as well as the strength of a position they are considering moving into (HILL & JONES, 2010 pp. 42). With a clear empathetic of where power lies in a business, an entrepreneur can take a fair advantage of a circumstance of strength; improve a situation of weakness besides avoid taking wrong steps.
Strategic analysts frequently use Porter’s five forces to comprehend whether new products or services are potentially profitable (HILL & JONES, 2010 pp. 43-44). Comprehending the competitive strengths and their essential causes exposes the roots of an organizations present profitability when providing a framework for antedating as well as influencing competition. According to author, the origin of profitability is indistinguishable regardless of business. This statement denotes that, industry structure is what eventually drives competition and profitability. If the forces are powerful as in some industries like airlines, textiles, and hotels, no organization can earn gorgeous returns on investment (PORTER, 1998 pp. 23). According to Porter, if the forces are benevolent, as they are in companies like soft drinks, software, and toiletries, then many industries are profitable.
Porter’s Five Forces
Porter viewed considerate both the competitive strengths and the general industry structure as critical for active strategic resolution making. The Porter’s five forces that form industry competition involve competition rivalry, bargaining power of suppliers, bargaining power of customers, the threat of new entrants, and the threat of substitute goods or services (HILL & JONES, 2010 pp. 43).
Competitive rivalry
This is the force that examines how powerful competition is presently in the marketplace. The force is established by the number of prevailing competitors besides what each is able of doing (HITT et al., 2007 pp.136). Rivalry competition is powerful when there are merely a few businesses similarly selling a product or service. Porter described the force as the degree of rivalry among existing organizations in the market. For instance, if there are more industries competing, the resulting competitive pressure will denote that it will drive profits, prices, and strategy. On the contrary, without this rivalry competition force, an organization may be able to set prices freely as well as profit margins without being dictated by what clients find attractive (HITT et al., 2007 pp. 116). An increase in competition rivalry between existing companies brings an industry closer to the theoretical perfect competition state. An example of this force is Coca-Cola. The main competitor of Coca-Cola is Pepsi that has an extensive range of beverage products under its brand. Both Coca-Cola as well as Pepsi are the main carbonated beverages and committed deeply to sponsoring outdoor occasions and activities (ENZ, 2010 pp. 65). There are other brands in the market that become popular such as Dr. Pepper since they have unique flavors. These brands have failed to attain the achievement that Pepsi or Coke has enjoyed as a result of competition rivalry.
Bargaining power of suppliers
This force investigates how much power an organization’s supplier has besides how much power it has over the potential to increase its prices that in turn would lower the firm’s profitability (HILL & JONES, 2012 pp. 64-65). Moreover, the force looks at the figure of suppliers accessible in the market. In this force, it where suppliers provide the raw materials required to offer a good or service to the customers. Powerful suppliers may be able to upsurge costs without affecting their sales volume or decrease quantities that they sell to customers (HILL & JONES, 2014 pp. 56-57). The usefulness of this force is that supplier may enjoy power if there are less them in the market. A supplier may be the only dealer of a meticulous raw material in the market hence giving him or her privilege of enjoying more the profits. An example of this force is the significant costs involved in switching suppliers whereby customers are less suitable to switch suppliers if there are large costs associated with switching (LUSSIER & KIMBALL, 2009 pp. 90). For instance, professional video editors are less probable to switch from one system to another due to the costs linked with buying new hardware.
Bargaining power of customers
In this force, the presence of powerful buyers decreases the profit potential in an industry. Buyers augment competition in an industry by forcing down prices, bargaining for enhanced quality or more services besides playing competitors alongside each other (ANALOU & KARAMI, 2003 pp. 84-85). Consumers in this force have the power to affect pricing as well as quality. Buyers have haggling power when they are strong enough to be competent of being able to put concerted pressure on the companies producing a product or a service. Buyer’s power is highest when they can collect together and aggregate for a large percentage of the producer’s sales income or when there are some suppliers offering the same type of product (PALEPU, 2007 pp. 47-48). Buying power is little when consumers buy products in small quantities, and the supplier’s product is very diverse from any of the other competitors. The strongest power that buyers can apply is to lower prices that in turn influences the profit potential. Buyers can also demand higher value of services or products and upsurge competitiveness by forcing various organizations into price wars. Bargaining power of customers will be strong and compelling depending on the characteristics of a market and its conditions and the percentage of sales income they offer. An example of this force is the grocery part since supermarkets tend to hold power over suppliers due to volume as well as the price of contracts. They command terms, set prices and can perhaps end agreements art any time without notice (DAFT, 2008 pp. 252).
Threat of new entrants
This is one of the forces that shape the competitive structure of a company. Power is also affected by the ability of people to enter in one’s market. This force refers to the threat new competitor’s pretense to prevailing competitors in the market (GROUCUTT et al., 2004 pp. 221). The meaning of these force revolutionized the mode people look at competition in an organization. It influences the competitive atmosphere for the prevailing competitors as well as influences the capacity of existing companies to achieve prosperity. An elevated threat of entry denotes that new competitors are liable to be engrossed to the profits of the organization and can enter it with comfort. New competitors joining the marketplace can reduce the market share and profitability of present competitors hence resulting in changes to prevailing product quality or price levels (ROBINSON, 2009 pp. 117). A high threat of new entrance can make a company more competitive and decrease profit potential for existing competitors. On the contrary, a low threat of entry makes an organization less competitive and upsurges profit probable for the prevailing firms. An example of this force is the web design where there are independents in every location. It is an easy market to join with very few requirements other than skills, inventiveness and pertinent hardware and software (DRANSFIELD, 2001 pp. 23-24).
Threat of substitute goods or services
A substitute product is one that may provide the same or related benefits to a company as a product from a different industry. It is also referred to as the accessibility of a product that the customer can purchase as an alternative to the company’s product (MILES, 1995 pp. 43). The threat of substitution in a firm influences the competitive atmosphere for the establishments in that company besides influences those firm’s capacity to attain profitability. The accessibility of a substitution threat influences the profitability of an organization since customers can decide to buy the substitute as an alternative to the industry’s product. The threat of a substitute is the level of jeopardy that a company faces from the interchange of its substitutes. An organization that has numerous possible substitutes that can easily be switched to have little power over the charges it sets or how it prefers to sell the products (KAZMI, 2008 pp. 290-291). An example of this force is the Coca-Cola Company that produces Coke, which is a tremendously a popular carbonated beverage sold all over the world. Since its invention, the product was meant to be used as a drug. The concentrate, made with an undisclosed formula is sold to these bottlers who complete the product and sell it in its diverse forms in their designated markets (PALEPU & HEALY, 2013 pp. 2-6). Moreover, apart from bottlers, the concentrate is also sold to restaurant and fast food chains to be used in soda fountains.
In conclusion, Porter’s five forces model has been a precise, powerful strategy framework providing guidelines to examine competition, profitability as well as investment attractiveness within an industry. By applying this tool assists to establish the position of company in the marketplace. It assists to affirm the strengths as well as weakness of the business that is very essential for the business. For instance, in the hospitality plus the tourism business, when they know their weakness towards the servicing that they offer to the consumers, they can discover out their weakness as well as try to execute by taking the best choice. The significance area in the hospitality business is offering the best services to the consumers. Many hospitality companies are using the Porter’s five forces whereby they are getting the achievement of their goal in the business since the model is very effective and powerful to the hospitality companies.
References
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PORTER, M. E. (1998). Competitive strategy: techniques for analyzing industries and competitors ; with a new introduction. New York, NY u.a., Free Press.
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ENZ, C. A. (2010). Hospitality strategic management: concepts and cases. Hoboken, N.J., John Wiley & Sons.
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DRANSFIELD, R. (2001). Corporate strategy. Oxford u.a., Heinemann.
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PALEPU, K. G., & HEALY, P. M. (2013). Business analysis & valuation: using financial statements
