Porter's 5 forces connected with SWOT

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A prominent example of firms that have a real bargaining power as buyers are the French supermarkets. Those firms have a huge Power as buyers. As there are tons of producers in France, they have plenty of choice to choose their suppliers and they turned this opportunity in to their main strength. If they want to sell their stocks, French producers have no other than selling at the price that supermarkets wants.

Another prominent example is Coca-Cola. With its huge marketing campaign, Coca-Cola is in everyone’s mind. As so, supermarkets have no other choices than to sell it if they want their customers to be happy. Coca-Cola has all the bargaining power because everyone wants some and is nearly dependent of it. This is a real strength that Coca-Cola have developed.

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- Bargaining of Suppliers

The third force in Porter’s 5 force model is the bargaining of suppliers. The bargaining power of suppliers is especially important on driving down costs and penetrating the market. Suppliers pose the threat of exerting bargaining power by threatening to raise prices or reduce the quality of goods and services. Suppliers have different way to acquire bargaining power. The most known is to be in concentrated numbers compared to buyers. In this case their power is high, and this threat becomes a weakness for the company. But, if it is the reverse and that there is a large number of suppliers, then the bargaining power of the supplier decrease and it becomes an opportunity for the company which can be turn into a SWOT strength. Other threats could be a high switching costs associated with a move to another supplier, or if they have specific ability or technology needed or even if their product is highly differentiated.

A good example of a company that overcome the bargaining power of suppliers is the example of the relation between Coca-Cola and its suppliers. The main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine, and there are many suppliers and there are not very differentiated. This gives plenty of choice to Coca-Cola to choose its suppliers; and as Coca-Cola is likely a large, or the largest customer of any of these suppliers, the company have a huge bargaining power other its suppliers. Coca-Cola turned this opportunity into a strength.

Another prominent example is the airline industry. There are hundreds of airline companies, but only 2 planes manufacturer, Boeing and Airbus. Those two manufacturers are in competition, but they still have a huge bargaining power over their buyers because buyers have no other choices than to buys from one of them. In a SWOT, this is a strength for Airbus and Boeing, but it is a weakness and a threat for the airlines companies.

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- Threats of substitutes

The fourth force in Porter’s 5 force model is the threat of substitutes. The threat of substitute contributes directly to a SWOT analysis by providing either threats or opportunities to a company. All firms within an industry compete with other industries producing substitute products and services This is why we analyse the presence of substitute products from other industries that could compete on price, performance, quality and availability with our own product. What could happen for example, is that the competition might try to lower their price in order to drive down our profitability and even kill the company.

A good example of that is the case of Netflix and Blockbuster, the movie rental company. Blockbuster didn’t realize that Netflix was a serious competitor and so they failed to see that consumers preferred cheaper and easier option to watch movies. If Blockbuster had identified the threat of substitute thanks to Porter’s 5 force analysis and applied this threat to their SWOT, there is a much higher possibility that they would have beaten this threat and avoid bankrupt. Nowadays, Netflix has become the number 1 streaming website.

Another good example is the airlines industry. There are hundreds of airline companies, and they used to not try to take other’s airline business. But for the past few years, new companies like EasyJet or Ryanair have been created and have taken a huge part of the business. With their incredibly low prices, they attract millions of customers every day and are crushing down other companies like Air France or TAP. Those companies that were created years ago have failed to see those low-cost companies coming and have failed to identify them as a threat. If they had identified the low costs companies as threats, they would have been able to work on their weakness (from the SWOT) like their price, and would have been able to compete with the low costs companies. The threat of substitutes consists of customers constantly looking for cheaper and easier ways to satisfy their need in a product or service. It is essential for a company to analyse the industry on a regular basis for these threats and incorporate them into their SWOT analysis.

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- Threats of new entry

The fifth force in Porter’s 5 force model is the threat of new entry. It refers to the possibility that the profits established by a company may decrease because of new competitors. This threat depends of the barrier to entry in an industry. Those barriers affect the company environment because the risk increase with the decrease of the entry barrier. Those barrier help companies to keep their competitive advantage. Companies can raise different type of barrier. There is the scale and experience barrier, this one comes with the access to supply. The more experienced the company is and the more place she takes other the market, the higher the barrier will be. Also, if they include some Proprietary Technology, some know-how, or if they have a favourable access to raw materials and geographic location, or even if they use a learning-curve cost advantage, they will drastically increase their barrier to new entrance and their competitors. The second one is the product differentiation; that mean that if a company have a brand identification and the loyalty of their customers, then the barrier will be high. Another barrier that can be raised is the access to supply and distribution channel. If a company have control over-supply and distribution, like in can be after a vertical integration, they can prevent any new entrance to sell their product. A last one