hello and welcome to marketing 91 comm Porter's five forces model helps companies understand where the power lies in a business situation it is a business strategy tool that helps analyze the attractiveness of an industry the model assumes that there are five forces that determine the competitive power of a company in a business situation the five competitive forces identified by Michael Porter are as followers rivalry among existing firms threat of substitute products threat of new entrant bio power and supplier power let's understand each of these forces in detail the threat of substitute products it refers to how easily a company's customers can switch to its competitors products rated on a scale from high to low the threat of substitute products is high in the following situations many substitute products are available in the market customers can easily find the product or service at the same or lower price compared to the company's product or service the quality of competitors product is better than that of the company if the threat of substitute products is high products offered by a company become less attractive and the company needs to closely monitor price trends to avoid any significant impact on its revenue and profits threat of new entrants it refers to the entry of new players into the market reducing the company's market share the threat of new entrants primarily depends on the industry's entry and exit barriers rated on a scale from high to low the threat of new entrants is high in the following situations the capital requirement to start a business in the industry is low economies of scale products have a low switching cost products are non differentiated and there is easy availability of the required technology in the market when both entry and exit barriers are high the profit margin is also high however companies face more risk because poorly performing companies stay in the industry and try to improve performance when these barriers are low firms easily enter and exit the industry and profitability is low industry rivalry it refers to the intensity of competition among the existing players in an industry rated on a scale of high to low industry rivalry is high on the following situations there are large number of competitors switching costs are low the industry is growing exit barriers are high and industry rivals stay in the industry and compete fixed costs are high resulting in higher production to achieve economies of scale and reduce prices high industry rivalry results in advertising Wars price wars and differentiation which ultimately increases costs and makes it difficult to sustain profits bargaining power of suppliers it refers to the degree of power suppliers have over rising the price of inputs rated on a scale from high to low the bargaining power of suppliers is high in the following situations suppliers are concentrated and well-organized few substitute products inputs are available the existing product input is effective or unique and switching cost is high when suppliers have more control over inputs and their prices the market segment becomes less attractive it is best to have a mutually beneficial relationship with suppliers and also have multiple suppliers bargaining power of buyers it refers to the degree of power buyers have to bring down the prices of products rated on a scale of high to low bargaining power of buyers is high in the following situations too many suppliers offer the same product at similar prices there are few buyers seeking to purchase a large number of goods bulk purchases are involved the product is not differentiated and switching cost is low the bargaining power of buyers can be brought down by offering differentiated products example online grocery market in India Porter's five forces model competitive rivalry high high competition in the industry with both new smaller players and big companies such as Amazon fresh Flipkart Google Express etc vying for a larger share of the market bargaining power of buyers high customers have a large number of online grocers to choose from all companies in the industry are trying to give the best value and shopping experience to customers bargaining power of suppliers Oh supplier power is low because online grocers have a large number of procurement options and involve bulk procurement providing suppliers with extra business by taking them online vendors can increase their sales by simply partnering with online grocers threat of new entrants medium the online grocery market is becoming highly attractive for new entrants owing to its huge market potential investors are bullish about the hyper local segment however high initial capital requirement low margin and intense competition are the main barriers to entry threat of substitute products medium to high only substitution available is offline stores and their delivery systems low or no switching costs as customers can easily switch to offline stores and other online grocery stores there is no brand loyalty for any particular player conclusion online grocery is a lucrative industry to enter if one is an enthusiastic entrepreneur with an innovative business model and good operational management there is considerable scope for success in the industry stay tuned for more videos on marketing thank you