The question has two parts; be sure to complete both. First, summarize Michael Porter's model for industry analysis, explaining each of the five primary competitive forces. Next, imagine you are the CEO of The Big Ram, a company that sells ramen noodles. Give an example of each of the five primary competitive forces in The Big Ram's environment.

Question

What will be an ideal response?

Answer 1

According to Michal Porter, business-level strategies originate in the five primary competitive forces in a firm's environment:

1. Threats of new entrants: New competitors can affect an industry almost overnight, taking away customers from existing organizations. For The Big Ram, new companies may enter the market for ramen noodles, offering new flavors or varieties, or undercutting The Big Ram's prices.

2. Bargaining power of suppliers: Companies without multiple suppliers are at the mercy of the one. Some companies are readily able to switch suppliers, but others are not. If The Big Ram sources all of its noodles from one supplier, it will be at that supplier's mercy.

3. Bargaining power of buyers: Customers who buy a lot of products or services from an organization have more bargaining power than those who don't, and customers who use the Internet to shop around are better able to negotiate a better price. Consumers' tastes may change. If people suddenly decide that ramen noodles are unhealthy, The Big Ram's business could take a nose dive.

4. Threats of substitute products or services: Other companies may offer similar or different substitute products. The Big Ram may find itself attacked by Kraft, which has decided to lower the price of its macaroni and cheese in order to take business away from The Big Ram.

5. Rivalry among competitors: Other ramen noodle companies, like Nissin and Top Ramen, want to be the most successful and will always be looking for ways to take market share from The Big Ram.