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Factors affecting this force are buyer concentration, the degree of dependency on the product, overall bargaining leverage, readily available purchasing information, substitute products, price sensitivity,Īnd total volume of trade. When consumers buy products in low quantities, the bargaining power is low. The same holds true when a large proportion of buyers can easily switch to a different product or service. When the number of consumers of a particular product or service is low, they have much more power to affect pricing and quality. The bargaining power of Customers: The bargaining power of customers looks at customers' ability to affect the pricing and quality of products and services. Possibility of supplier integration forward, to obtain higher profits and margins. High switching costs from one to another supplier.The supplier customer base is fragmented, making their bargaining power low.There are no alternative products available.The market is conquered by a few big suppliers.Thus, supplier bargaining power is high when: On the contrary, when the number of suppliers is relatively small, they can push the prices up and be powerful. When there are a lot of suppliers, buyers can easily switch to competition because no supplier can, actually, influence the prices and exercise control in the industry. The bargaining power of suppliers: it represents the extent to which the suppliers can influence the prices.
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The Porter's five forces analysis include the following components:
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Is the state of competition in the industry stronger than "normal"?.Using the Five Forces model can help answer the following questions: Determine whether the strength of the five forces is favorable to earning attractive profits in the industry.Based on the factors identified, determine if the pressures are:.Who are the major competitors in this industry?.Is it difficult to enter this industry?.Identify the different factors that bring about the competitive pressures for each of the five forces:.Porter's Five Forces Analysis makes a strong assumption that there are only five important forces that could determine the competitive power in a business situation. Porter's Five Forces Analysis is an important tool in the project planning stage.