Tuesday, June 30, 2009

Porter's Five Forces

Another interesting idea from MindTools.com:

In business, power comes from these five forces.

Supplier power: more suppliers, less power for each one
Threat of new entry: if it's a profitable business, someone is likely to jump in to compete
Buyer power: big buyers can dictate terms (think Wallmart forcing Coke to give them a discount 10% lower than any other buyer, or Amazon taking 70% of newspaper revenues)
Threat of substitution: if there's another way to meet the customer need, maybe the customer will use that solution instead
Competitive rivalry: competitors tend to drive down the price to the "marginal cost of production"

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