7.4 The Competitive Environment (AQA A Level Business): Flashcards
Exam code: 7132
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Define Porter's Five Forces.
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Cards in this collection (16)
Define Porter's Five Forces.
Porter's Five Forces is a model identifying the key competitive pressures on a business within an industry.
Name Porter's Five Forces.
Threat of new entrants, buyer power, supplier power, competitive rivalry and threat of substitutes.
When is the threat of new entrants high?
When barriers to entry are low, so new competitors can enter quickly and without much investment.
When do buyers have significant power?
When a business sells to a small number of customers, who can negotiate lower prices.
When do suppliers have significant power?
When they offer a specialised component or there are few suppliers, so the business must pay high prices.
When is competitive rivalry high?
When many competitors sell similar products, giving each business little power.
When is the threat of substitutes high?
When customers can easily swap a business's products for those of a rival.
What did Porter argue managers can do with the Five Forces?
Understand the pressures in context, then take strategic decisions to achieve and sustain competitive advantage.
How can a firm reduce the threat of new entrants?
Raise barriers via patents, large-scale production or strong brands (e.g. GSK's research and patents).
How can a firm reduce buyer power?
Differentiate products or lock customers in with loyalty programmes (e.g. Apple's ecosystem).
How can a firm reduce supplier power?
Use multiple suppliers, make their own parts, or sign long contracts (e.g. supermarket own-brands).
How can a firm reduce the threat of substitutes?
Add unique features, bundle services or improve convenience (e.g. Vue's luxury recliner seats).
When barriers to entry are low, the threat of new is high.
When barriers to entry are low, the threat of new entrants is high.
True or False?
When a business has many customers, those customers have more bargaining power.
False.
Many customers means each has less power; buyer power is high when there are few customers.
True or False?
A specialised component supplied by only a few firms gives suppliers significant power.
True.
Few suppliers or a specialised component leaves the business paying high prices on suppliers' terms.
True or False?
Porter's Five Forces analyses a business's internal strengths and weaknesses.
False.
It analyses external competitive pressures in the industry; SWOT covers internal strengths and weaknesses.
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