Note: If the suppliers have multiple revenue sources in the industry, then it is diversified in its customer base.If the customer business is able to establish a long-term relationship with a new supplier, then the impact of the switching costs are less and the supplier power is lessened. Note: If switching costs are high, suppliers have much greaterpower in the short-run.The Cost of switching to a different supplier.If this lack of substitutes is combined with a competitive advantage among individual suppliers, then the supplier power is very high. Note: A lack of substitute products on the market gives a group of suppliers increased power.Lack of substitute products on the market.Examples of competitive advantage include, intellectual property rights, lower cost structures, geographical location, established infrastructure, etc.) Note: Certain suppliers have competitive advantages that allowthem to monopolize larger shares of a given market.Competitive advantage to any individual suppliers.Note: Certain suppliers may have a differentiated product with a higher value proposition).o The value proposition of any suppliers goods. Note: If the suppliers are more concentrated on the customer market(businesses) then the buyer has greater power.Supplier power is generally a product of the number of factors, including: Dont think of the supplier analysis as examining a single supplier rather, it involves the entire group of suppliers in the market. If your business is not capable of passing the costs along to customers, then it lowers your profit margin and your competitive position in the market. That is, the higher the supplier power the more control they have over prices (ability to drive up costs).
A supplier with more power has a greater ability to bargain for and capture value in the exchange of value between them and the customer (your business). Supplier power addresses the relative strength of suppliers in the industry. Origin of Figure: "How Competitive Forces Shape Strategy" in Harvard Business Review 57, March April 1979, pages 86-93. The following diagram displays the interrelation of the forces. The PFF analysis demonstrates the market power of the business with regard to this business force. PFF breaks down a given business position into five distinct forces. Next Article: Summary of Strategic Analysis Back To: ENTREPRENEURSHIP What is Porters Five Forces? Particularly, it is useful in determining whether a new strategy, product, or business model will be successful in the relevant market. The overall purpose of the PFF analysis is to allow you to use your knowledge to strengthen your position in the market. The most common and well-known tool for examining the business situation is Porters Five Forces (PFF), again introduced by Harvard Business Professor Michael Porter.
Now we turn our sights to understanding our business place in the industry. The previous discussion analyzes the business and the overarching environment affecting the business.
THE THREAT OF NEW ENTRANTS IS HIGH WHEN THERE ARE UPDATE
Update Table of Contents Understanding Your Business Position in the Industry What is Porters Five Forces? Breaking Down the Forces Supplier Power Buyer Power Competitive Rivalry Threat of Substitutes Threat of New Entry Summary Model of Porter's Five Forces Understanding Your Business Position in the Industry
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