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Word Count: 447
Five Forces Analysis helps the marketer to contrast a competitive environment It has similarities with other tools for environmental audit such as PEST analysis but tends to focus on the single stand alone business or SBU Strategic Business Unit rather than a single product or range of products For example Dell would analyse the market for Business Computers ie one of its SBUs Five forces analsysis looks at five key areas namely the threat of entry the power of buyers the power of suppliers the threat of substitutes and competitive rivalry The threat of entry Economies of scale eg the benefits associated with bulk purchasing The high or low cost of entry eg how much will it cost for the latest technology Ease of access to distribution channels eg Do our competitors have the distribution channels sewn up Cost advantages not related to the size of the company eg personal contacts or knowledge that larger companies do not own or learning curve effects Will competitors retaliate Government action eg will new laws be introduced that will weaken our competitive position How important is differentiation eg The Champagne brand cannot be copied This desensitises the influence of the environment The power of buyers This is high where there a few large players in a market eg the large grocery chains If there are a large number of undifferentiated small suppliers eg small farming businesses supplying the large grocery chains The cost of switching between suppliers is low eg from one fleet supplier of trucks to another The power of suppliers The power of suppliers tends to be a reversal of the power of buyers Where the switching costs are high eg Switching from one software supplier to another Power is high where the brand is powerful eg Cadillac Pizza Hut Microsoft There is a possibility of the supplier integrating forward eg Brewers
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