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Porter's five
forces
· Buyers are free to switch to other goods (substitutes) and are
Business Strategy Design Patterns 15-May-05
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forces sensitive to price, they accept there is usually a trade off between
price and quality, there is no "free lunch."
· Substitute goods exist competing for buyers money. Some
substitutes are defined as perfect substitutes, e.g. a Panasonic
VHS recorder maybe a perfect substitute for a Sony VHS
machine, while others are close substitutes, e.g. a Philips DVD
player. More distant substitutes may be more different still, e.g.
a trip to the cinema.
· Ultimately, given time, all goods may substitute for all other
goods, e.g. money saved from not buying a new VHS may be
used to finance a new house.
· Suppliers must compete for firms business in terms of price and
quality. A variety of suppliers ensures that no one supplier can
exert undue influence over the firm.
· New entrants are free to enter the market provided they can
secure the resources (capital, labour, knowledge) required to
enter the market. Above normal profits will attract new potential
entrants to the market, however, not all of these potential
entrants will be able to secure the required resources.
· Similarly, where firms cannot make at least normal profits they
will leave the market. There are no unusual barriers to market
exit. However, some firms may resist leaving a market either
through inertia or high fixed costs.
· Rivalry between firms is always present, in some cases more
intense than in others. Firms should assume that if they fail to
serve a market segment then an existing firm (or new entrant)
will seek ...