Assalamualaikum as usual i would like to tell all of you guys about chapter 2 porter of  5 forces model which the purpose to works as a frameworks for industry and business strategy development. it is important tool for assessing the potential for profitability in an industry and it is also useful as way of assessing the balance of power in more general situation.  

Below is the diagram of 5 model:

·         Supplier Power: The power of suppliers to drive up the prices of your inputs.

·         Buyer Power: The power of your customers to drive down your prices.

·         Competitive Rivalry: The strength of competition in the industry.

·         The Threat of Substitution: The extent to which different products and services can be used in place of your own.

·         The Threat of New Entry: The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down).

Understanding Tools

1.        Supplier Power:  it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.

2.        Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.

3.        Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.

4.        Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.

5.        Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.