Welcome to the Porter's
Five Forces Model. After watching this video, you will be able to identify the Porter's five forces model, explain five forces in
Porter's five forces model, and describe three strategies to deal with Porter's
five forces. Welcome to a brief overview of the Porter Five Forces Model and strategies recommended
to address the results of this
analysis method. As an introduction, the
Porter Five Forces Model is a commonly used tool to help evaluate market
attractiveness and aid in product management, decision-making, and planning. Today, we will briefly illustrate
the Five Forces Model. As a scenario, a
company produces three dimension or 3D printers. They are already established
and are developing a product concept to potentially launch a
new, improved printer. The Five Forces Model allows the product management
team to evaluate five distinct market
forces that can work to either your advantage
or disadvantage. Let's do a brief
five forces analysis to share how this works. The first force is entitled
barriers to entry. In this particular scenario, entry for new competitors
is going to be difficult. If you want to get into
the 3D printer business, costs to set up
require facilities, equipment, and
skilled personnel. This company is established, barriers to entry
becomes an advantage. Why? Because new competitors will have difficulty
entering the market. The second force is
threat of substitution. In this particular case, threat of substitution is moderate. This firm will need to make it difficult for
the competition, of course, to
duplicate its product. Some competitors may be
able to duplicate some of the functions and features you plan to build into your product. However, developing a
competitive substitute requires design excellence
and technical ability. The third area is the
bargaining power of buyers. There are a number
of competitors who offer a variety of 3D printers. Buyers have moderate to high power based on
the number of choices. This firm will need to
be able to differentiate its printer to show value beyond what the
competition offers. The fourth force is bargaining
power of suppliers. There are a number of materials required to build a 3D printer. They include frames,
print beds, rails, stepper motors, extruders, power supplies, and electronics. This firm will be dependent upon an external supply chain
with high bargaining power. The firm will need to forge
powerful partnerships and have multiple inventory
and supply options available. The final force is rivalry
among current competitors. There are at least
five major competitors with reasonable 3D
printing products. This firm will need
to carefully evaluate the competition
and differentiate its products successfully. There are three strategies. Porter suggests that
product managers use one of the following strategies to
deal with the five forces. The 3D printer firm will need to determine which strategy
is most appropriate. These strategies
include Number 1 , overall cost leadership. Customers are aware
of the bottom line. If your product has the
lowest cost on the market, it will gain attention. This is no guarantee the customer will
complete the purchase, but it does greatly increase the odds they will
consider your product. The second strategy
is differentiation. Share how your product
differs from other products. Highlight functionality
and features you offer that the
competition can't match. Consumers often place value
on quality over cost. They are often willing to pay a higher premium for the perceived value
they will receive. A consumer is generally willing
to pay more for quality. The final strategy
is entitled focus. Try to find a niche. Look for features and functionality that no
competitor can provide, develop, and deliver a quality, cost-effective product
that fills the gap. In summary, the five
forces are a reality. A product manager must understand the
forces, address them, and plan and develop
products that allow you to overcome the risks
presented by the five forces. You will have an
opportunity to conduct a five forces analysis using a solar water
heating scenario in a hands-on lab later
in this lesson. In this video, you
learned that you use Porter's Five Forces Model for product management to
analyze barriers to entry, threat of substitution,
bargaining power of buyers, bargaining power of suppliers, and rivalry among
current competitors. You can use any of the following three
strategies to deal with Porter's five forces:
overall cost leadership, differentiation, or focus.