Porter’s 5 forces analysis is a framework for industry analysis and business strategy development. Michael E. Porter of Harvard Business School developed it in 1979. Strategy consultants occasionally use Porter’s 5 forces framework when making a qualitative evaluation of a firm’s strategic position. It is usually only used as a starting point or ‘check list’.
In 2001 Porter published, Porter, M., (2001) Strategy and the Internet, Harvard Business Review, March, pp. 62-78, where the 5 forces model was updated to take account of the impact of the Internet.
Porters 5 force analysis is occasionally used by large business to determine the businesses strategic position when they are making a qualitative decision. I will now discuss the impact on the Sports Direct website in each of these five areas.
The threat of substitute products and services:
Obviously there are a huge amount of businesses and online stores that specialise in sporting goods and so there is going to be a lot of competition for Sports Direct and the threat of customers going elsewhere online to purchase cheaper goods. However Sports Direct is a very reputable and well-known brand that provides many different brands at a very reasonably price so obviously there will be a large customer base directed to the Sports Direct website when looking to purchase sporting goods.
The threat of the entry of new competitors:
The web is probably the most effective and popular way of advertising and selling products/services and because sporting goods is such a big industry there is going to be a lot of competition for Sports Direct. As there will be so many other websites providing the same products as Sports Direct and sometimes at a better price they really need to continue to improve their advertising and incentives for customers such as sales, coupons and delivery deals. Sports Direct is at a great advantage however as it has so many stores in the UK and Ireland as well so they have huge profits coming in from their stores as well unlike businesses that only operate online.
The intensity of competitive rivalry:
The intensity of rivalry in the sporting goods industry is always going to be fierce as each business all sell a lot of the same products so they are constantly trying to marginally lower their prices to beat their competitors. Rival intensity often remains high if brand loyalty is insignificant and if exit barriers are high. The higher the intensity of the rivalry between competitors is usually better for the customers as prices are continually dropping but for the business it has quite a negative effect as it leads to lesser profits and could even lead to a loss of customers. So for Sports Direct to remain competitive in this industry they would need to look at other businesses in the same area and find ways to attract customers to them before going to another online store.
The bargaining power of customers/buyers:
Buyer bargaining power refers to the pressure customers can apply to business to get them to sell items at lower prices and for better deals. Customer bargaining then refers to. Sports Direct would be considered to be a strong buyer simply because of its popularity and demand. This means they can pressure sellers to give lower prices and offer higher quality products. So in turn they can then offer better prices to customers which is good all round and gives the business a better image. Customers also have bargaining power when they well educated on the products, the product they purchased or are purchasing is affect and if they are valued customers. Customers having bargain power results in them being able to drive for lower prices and better quality products. Customers and buying bargaining is good for Sports Direct as customers feel more values and get better prices and the buyers can drive for cheaper prices meaning they can sell for lower prices too.
Bargaining power of suppliers:
Suppliers having strong bargaining power means they can dramatically increase rivalry in an industry (sporting goods industry for this example) by raising prices of products or even threatening to reduce the quality of products. So as a result they can reduce the profits in a given industry and make it extremely hard for smaller businesses to grow in a certain industry.
Sports Direct is quite a reputable and long standing business however which would have good relationships with their suppliers so they are a bit safer than smaller, developing business. Plus Sports Direct also have good bargaining power as buyers as well so it works both ways.
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