Whether Porter’s Five Force is The Best Strategy for The Company?

Currently many companies use various strategies in maintaining or developing the company. In general, this strategy is aimed either at making a profit or to be able to compete with other companies. Therefore, there are various kinds of strategies implemented by companies in order to survive. One strategy is to use Porters Five Force. Porter’s Five Force itself is one strategy which greatly benefits the company both internally and externally. With Porter’s Five Force, the company can perform analysis so that it can find out every aspect of the company that must be maintained or developed.

What is Porter’s Five Force?

Porter’s Five Forces is a model that recognizes and analyzes five competitive forces that form each market, helping to define the vulnerabilities and strengths of an industry. The study of Five Forces is often used to describe the structure of a market to assess corporate strategy. To recognize the degree of competition within the industry and increase the long-term viability of a business, Porter’s model can be applied to any segment of the economy. This model is named after Harvard Business School professor, Michael E. That published as a book, “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980. Porter’s Five Force itself has 5 characteristics, that is Rivalry among existing competitors (firm), Threat of new entrants, Bargaining power of suppliers, Threat of substitute products, and Bargaining power of buyers. From those characteristics the company can analyze where their position is for the characteristic and, they can determine are they in the low, moderate, or even high position or the threat for the company. For example we will analyze Facebook Inc. Porter’s Five Force.

Rivalry Among Existing Competitors

Each company certainly has competitor, could be it only one competitor or several competitors depends on the company sector. As we know Facebook Inc. is one of the world’s most valuable companies. It is considered one of the Big Five technology companies along with Microsoft, Amazon, Apple, and Google. There are only several companies that offer service like Facebook Inc. For example, YouTube, and Instagram. In the context of this study of the Five Powers, a small number of competing companies are exerting a weak power against Facebook. The range of these businesses, however, helps draw advertisers, thus placing a moderate force in the industry setting. Furthermore, the low cost of switching (low complexity in shifting from one supplier to another) makes it easier for marketers to migrate away from the business to rivals. The moderate intensity of competition is generated by these external factors.

Threat of New Entrants

New entrant on the social media companies usually didn’t give a big impact for company such as Facebook Inc. But although the impact didn’t big enough Facebook itself must always prepare their own strategies and maintained their service so in the end, they can still stand up as big five technology companies. Another reason why the new entrants didn’t give a big impact is because the customer that use Facebook service usually already comfortable with their service such as advertising for other company. In the end from the Porter Five Force analyze we can see that it is very difficult to develop a popular and realiable brand that similar like Facebook’s.

Barganing Power of Suppliers

Supplier for company usually will influence the company productivity and the future of the company. Supplier power itself is something that determines the course of a company if we have cooperation with suppliers so that we can get the supplier’s trust, of course this is very beneficial for the company. Servers and associated computing and network technology/equipment, as well as office supplies, are examples of the supply needs of Facebook. Some suppliers are large corporations that have a mild impact on the business. These supplies are, however, accessible from many suppliers. So in the end the power of suppliers are a minimal issue for company that engaged in the social media.

Threat of Substitute Products

Facebook itself is one of the social media platforms which is mostly used as a means of advertising something and of course as a platform for communicating with each other to streaming. Substitutes could potentially reduce Facebook’s business performance and create challenges in the social media firm’s industry environment. Instead of paying for Facebook’s social media advertisements, it is convenient for advertisers to pay for replacements, such as television, radio and print advertisement. This analyze make substitute products for Facebook it self become a strong force for the company, but there are some television and radio advertising are more expensive than Facebook’s advertising service. Such as this condition exerts a moderate force on the company.

Bargaining Power of Buyers

Facebook users themselves consist of children to adults and even companies that use Facebook itself to advertise products from these companies. Along with the development of the times, of course, there are many social media that have sprung up and many features are better than Facebook. Facebook provides its members / users with social media services. Nevertheless, advertisers are the company’s biggest source of profits. These marketers have the option of using highly available substitutes. For instance, consumers might advertise on television, radio and print media instead of advertising on Facebook, all of which are readily available and successful in reaching target audiences. Such a situation exerts a powerful force against the company in this Porter’s Five Force.

From those analyze we can conclude the position of the Facebook Inc like this :

By understanding the Porter’s Five Force that apply for the industry in the many different sector, we can enable analyze the company strategies to compete with the another company. Porter’s Five Force is the best business strategy in my opinion for the company that want to maintance and developing the company. With this model analyze the company will simply know where is their weakness and their power for the company future.

Picture Source :

Picture 1. Porter’s Five Force Characteristic. https://www.business-to-you.com/porters-five-forces/

Picture 2. Facebook Porter’s Five Force Analyze

Article Source :

Michael E. Porter. “Competitive Strategy: Techniques for Analyzing Industries and Competitors (Abstract). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1496175.” Accessed December. 30, 2020.

Investopedia. “Porter’s 5 Forces. https://www.investopedia.com/terms/p/porter.asp#.” Accessed December 30, 2020.

Panmore Institute.”Facebook Inc. Five Forces Analysis (Porter’s Model) & Recommendations. http://panmore.com/facebook-inc-five-forces-analysis-recommendations-porters-model#.” Accessed December 30, 2020.