This lesson introduces the firm’s external micro environment and Porter’s Five Forces as a tool for analyzing it. It focuses on two forces: industry rivalry and the threat of new entrants.
A firm’s external micro environment consists of groups and organizations directly connected to the firm, including customers, suppliers, competitors, and potential entrants. These relationships shape the firm’s ability to operate and compete.
All flashcards
What is industry rivalry?
The intensity of competition among firms already in an industry as they seek customers and market share.
What is the threat of new entrants?
The possibility that new firms will begin competing in an industry.
What is a substitute?
A different product or service that can satisfy the same customer need as an industry’s offering.
What is supplier power?
The bargaining leverage suppliers have in their relationships with firms that rely on their inputs.
What is buyer power?
The bargaining leverage customers have in their relationships with a firm.
Quiz questions
What does Porter’s Five Forces help managers assess?Answer: Competitive pressures that can affect firms’ potential for success in an industry.
What distinguishes a substitute from a direct rival?Answer: A substitute meets the same customer need but may come from another industry.
Which situation is most likely to give suppliers greater power?Answer: Firms depend on a specialized input and have few practical supplier alternatives.
When are customers most likely to have greater buyer power?Answer: When they have many potential sources and can readily choose among them.
How can switching costs affect buyer power?Answer: They can make customers less willing to change products, reducing their leverage.
Based on Principles of Management by David S. Bright, Anastasia H. Cortes, Eva Hartmann, K. Praveen Parboteeah, Jon L. Pierce, Monique Reece, Amit Shah, Siri Terjesen, Joseph Weiss, Margaret A. White, Donald G. Gardner, Jason Lambert et al. (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.