People’s Bank and Porter’s Five Forces

Introduction People’s Bank is a multi-service financial institution that has grown to have assets reach nearly $12 billion. When it started in 1842, it opened as a general savings bank aimed at the blue-collar worker who wanted to save his/her money. Now People’s offers many services such as mortgage loans, credit cards, checking accounts, and investment advisory and brokerage services. People’s also offers many different ways in which to do your banking whether it be at the local branch, the supermarket branch, online with PC banking, or over the phone. Currently, People’s primary market is Fairfield County. However, statewide it is the number one mortgage lender and it does business with about 25% of the households in Connecticut. It is also known internationally for offering a credit card with a low, fixed rate. The following paper will dissect People’s Bank through Michael E. Porter’s five forces model. The five forces model is the framework for analyzing determinants of industry profitability. It is used to identify the threats and opportunities confronting a company that is thinking of entering into a particular industry. The model focuses on five particular forces that Porter says shape the competition that is in each particular industry. Rivalry among established firms is the central focus that is surrounded by the threat of potential entrants and substitute technologies, as well as bargaining power of buyers and suppliers. The first of Porter’s five forces is the extent of rivalry among established firms in the industry. If there is strong rivalry in the industry, then competition will be fierce and profits will be limited. This will also limit other potential firms from entering the market. The second of the forces listed is the threat of potential entrants into the industry. These are the companies that are not currently in the industry but have the resources to enter the industry at any time. This is a threat because it is another company that can potentially take away market share. The third force that Porter mentions is the threat of substitute technologies. These are substitute products that can serve the industry as a replacement to the current technology. This is a threat because if a firm does not change with the times it could go bankrupt. The fourth force that Porter discussed was the bargaining power of the buyers. He believed that the buyers, or customers, were threats when they were able to force prices down and quality up. In this case, the operating cost of the supplier would increase and profits would decrease. The final force that is talked about is the bargaining power of the suppliers. The suppliers became threats when they also had influence on raising prices, which in turn raised the operating costs. Rivalry Among Established Firms The extent of competition between rivals in an industry dictates the effectiveness of different individual company’s business strategies. In a weak competitive environment, company’s can set prices to maximize profits. In an environment of stronger competition, companies will see themselves involved in more intense price competition, and possibly even a price war. The extent of rivalry is determined by three main factors: the industry’s competitive structure, demand conditions, and the height of exit barriers in the industry. The number and the size of the companies that make up the industry determine competitive structure of an industry. This make up can range from fragmented, with many small to medium sized companies and no clear dominator, to consolidated, which can be characterized by either an oligopoly or a monopoly. Competition