Explain Porter’s 5 Forcesexplain Porter’s 5 Forces

CIS 500 Midterm

Heather Plum

10-29-2007

1) Explain Porter’s 5 forces. Give Examples.

The Five Forces Model helps determine the relative attractiveness of an industry and includes: Buyer Power, Supplier Power, and Threat of substitute products or services, Treat of new entrants, and Rivalry among existing competitors.

Buyer Power in the Five Forces Model is high when buyers have many choices of whom to buy from and low when their choices are few. To reduce buyer power an organization must make it more attractive for customer to buy from it instead of its competition. An example of way that a company can reduce the power of a buyer is through Loyalty Programs.

Supplier Power in the Five Forces Model is high when buyers have few choices of whom to buy from and low when their choices are many. Supplier power is the converse of buyer power: A supplier organization in a market will want buyer power to be low.

The Threat of Substitute Products or Services in the Five Forces Model is high when there are many alternatives to a product or service and low when there are few alternatives from which to choose.

The threat of new entrants in the Five Forces Model is high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market. An entry barrier is a product or service feature that customers have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive.

Rivalry among existing competitors in the Five Forces Model is high when competition is fierce in a market and low when competition is more complacent. (Baltan & Philips 17-20)

Here is an example of a real world application of the Porter’s Five Forces model and how it relates to the yellow page industry in Lexington.

Buyer Power-With 4 different yellow page books in Lexington the Buyer power is high as buyer have many choices ( in relation to the city size) when they choose in which to advertise.

Supplier Power-Again there is 4 different yellow pages in Lexington. So for the size of Lexington and surrounding areas buyers have many different choices.

The Threat of Substitute Products or Services-In the yellow page industry actual books is becoming a thing of the past as the internet replaces the phone book. So the threat of substitute products or services is very high in the industry. Also many cell phone users have directory assistance that can give phone number, direction, and other useful info that was once only found in the yellow pages.

Rivalry among existing competitors-The rivalry among the competitors in the market is very high. Again in the yellow page industry in Lexington there are 4 books competing for advertisers.

2) Using a real business that you are familiar with, explain how technology aids in the business’s success, technology helps each unit within the organization work, and how it helps each unit work with other units.

Big surprise! I am using Kuhlman Electric as my example. I will be focusing on the IT impact to Marketing, Sales, and Customer Service. The IT impact on Marketing begins with the Website that often is the way that potential customers can research the type of units that Kuhlman does produce. The website includes product descriptions, an online catalog, the company history and a quotation sheet. The product descriptions are important for those customers who are not familiar with electrical transformers and often customers can save themselves the call to Kuhlman customer service by reading the descriptions. Also the descriptions are important right now that the DOE (Department of Energy) has passed new efficiency standards. Those new standards are described along with the product descriptions. The online catalog ties right in with the descriptions to show pictures and offer dimensions and other specification for units that a customer may be in the marker to purchase. The company history allows potential customers to get a sense that Kuhlan have been in the market for some time. And while Kuhlman is not the “ Wal-mart” of transformers, they have worked hard to establish a niche market for those customers looking for high quality and specialized units. The quotation sheet helps marketing because once the sheet in filled out by the potential customer and sent into Kuhlman the design engineers can take a look to see if 1)The unit can be built 2) What the cost would be to build the