This article brings out the five competitive forces that can influence the profitability of an industry. The article shows the importance of identifying and exploiting game-changing trends in order to sustain a long-term profitability in a competitive market.
The author addresses the five competitive forces that can have a negative impact on potential profits of a business. Customers can reduce profits when they are searching for the best deals between a company and its rivals. A reduction in profits is expected once the suppliers raise the prices. New players entering the market will cause a constraint together with established rivals that have been in the arena for quite a while. Lastly, business substitutes can lure the customers away hence reducing the profits. The author provides the tactics that can help maximize on profits; neutralizing supplier’s power, countering customer’s power, tempering on price wars that have initially been initiated by established rivals, offering better value for one’s products so as to limit the threat of substitutes and use of entry barriers that are meant to scare away new rivals. People assume that other factors can determine the profitability of an industry but the truth is, such factors will never be forces that determine industry’s profitability. The author outlines such assumptions to be; complementary goods and services, technology and innovation, industry growth rate and government intervention. Besides determining the profitability of an industry, the five factors can reveal the positioning of a company within an existing industry and also allow the companies to analyze their entry and exit in the market. The article creates awareness on ways that the structure of an industry can be reshaped. Re-dividing profitability in favor of incumbents or by the way of expanding the overall profit pool.
I feel that this article is worth because the writer has clearly outlined how the five forces can affect the profitability of a company. Use of simple terms and good grammar has made me understand the whole article. The article is clear as it lacks ambiguity and most of all; I find it very useful in uncovering opportunities that can help a company gain a sustainable advantage over its rivals.