3.7.7 Analysing the external environment to assess opportunities and threats: the competitive environment

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Porter's five forces

Entry threat

Buyer power

Supplier power

Rivalry

Sbsitute to threat

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Rivalry

One dominant business: 'monopoly' - bad for consumers, restrict choice, tend to drive prices up. 

Comp amongst few giants: can be intense. Reluctant to compete by cutting price - fear creating constlt price war where no firm wins.

Fiercly competitive market: tends to be fragmented. Small firms. Product eg flour - hard to differentiate. Will try to create differentiation. 

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Threat of new entrants

If new comp enters, market becomes more competitive. New entrants usually attracted by high profits/rapid growth.

Degree of threat of entrants depends on barriers to entry eg:
 - huge development costs
 - huge extra costs
 - potential customer resistance based on lack of track record regarding quality + therefore safety

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Buying power

If buyers too demanding of discounts + longer credit terms, can negotiate w/ competitors. If negotiations go well, can tell original business you don't want to supply to them. So as the producer, you have some power.

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Supplier power

The bigger you are, the more power you have over suppliers. If you're smaller than the supplier, they have more supplier power.

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Threat of substitutes

Means new comp from outside the traditional industry.

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