Easier entry always equals risk of market share depletion. When a competitor has an easier time entering the marketplace, the business doing the analysis has a greater probability of losing market share. The threat of new entrants examines the ability and ease of a new company to enter the marketplace and offer a viable product in the industry. Factors affecting this force are buyer concentration, the degree of dependency on the product, overall bargaining leverage, readily available purchasing information, substitute products, price sensitivity, and total volume of trade. When consumers buy products in low quantities, the bargaining power is low. The same holds true when a large proportion of buyers can easily switch to a different product or service. When the number of consumers of a particular product or service is low, they have much more power to affect pricing and quality. The bargaining power of customers looks at customersвЂ™ ability to affect the pricing and quality of products and services.

The supply purchase cost relative to substitute suppliers.

The availability of identical substitute suppliers.

The cost of a business switch suppliers.Suppliers also have strength in the following ways: The strength of distribution channels and the importance of material volume are also factors in this force. As a small business, the stronger industry to be in is one where there are a large number of suppliers. If there are fewer suppliers, they have more power, which is more detrimental to a business.

Beyond this factor, this force also identifies and analyzes the actual number of suppliers in the industry. This has a direct effect on a businessвЂ™s profitability through lower margins. The bargaining power of suppliers focuses on the potential power of a supplier and its ability to raise prices. Some other factors affecting this force are exit barriers, fixed and variable costs, intermittent overcapacity, and corporate stakes. Quantitatively, rivalry can be measured with the concentration ratio, which is the sum of the market shares of the top four companies in the industry, expressed as a percentage. The main outcome of high rivalry is price wars between companies that can drastically affect profit margin. Rivalry is particularly high when there are fewer competitors, the industry itself is growing, or when consumers can easily switch to another competitive product.

Identifying competitors and seeing precisely what they are capable of is the heart of this force. Competitive RivalryД¬ompetitive rivalry is all about the number of current competitors to a businessвЂ™s products or services in the marketplace. The five forces of the model are competitive rivalry, bargaining power of suppliers, bargaining power of customers, threat of new entrants, and threat of substitute products or services. Using the model helps a business understand its strengths and weaknesses with much more context. The model looks at five separate competitive forces. The PorterвЂ™s Five Forces model was created by Michael Porter of Harvard University to analyze competition within an industry, and it also serves as a business strategy tool.

Threat of new entrants definition