How Porter's forces contribute to the SWOT analysis

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Introduction

Porter's Five Forces model is a market analysis technique that considers the five dimensions on which the company can act to maximize its competitive advantage: competitor rivalry; the threat of new entrants; the threat of substitution products; the bargaining power of customers and the bargaining power of suppliers.

The objective of this matrix is ​​to analyse the competitive environment of the company and anticipating developments that would put its competitive advantages at risk, and guide its choices in terms of investment and innovation. The five forces represent this competitive environment.

This tool makes it possible to identify and put in place development strategies that consider all the opportunities as well as the threats of the market.

However, in an increasingly complex economic world, which is constantly changing due to globalization, innovative technologies and new business models are upsetting the rules of the competitive game. Therefore, the analysis concerning competitive strength must be complemented by many differing tools for strategic analysis, such as the SWOT, which has appeared and become popular within the last thirty years.

SWOT is a tool that allows you to compare the external analysis of the environment and the internal analysis of the resources of the company. It relates the influence of the environment and competition to the skills and resources of the company. The method consists of synthesizing in a matrix the strengths and weaknesses linked to the company, as well as the threats and opportunities linked to external factors.

The question then comes down to asking how Porter's forces contribute to the SWOT analysis. To answer the question, each of the forces will then be analyzed to show how they complete and serve the SWOT analysis.

Bargaining Power of Buyers

According to the company, customers will have variable bargaining power. The trading capacity of the client will depend primarily on its weight in the market on the one hand, and its weight in the portfolio of the other company. For example, large companies, central purchasing in supermarkets, local authorities ... The latter are all the most powerful as they can afford to buy in large quantities and can weigh up the characteristics of the products relative to the price level set.

The power of customers can be different depending on several criteria, such as the level of concentration and size of the client companies, number of customers, customer brand image, product differentiation (or standardization), number of substitute products ...

The concentration of customers creates situations of dependence on the profitability of companies. This dependency provides bargaining power to these customers.

For example, customers exert enough pressure on distributors, which puts pressure on suppliers to manufacturers. However, it is known that this pressure also depends on the size and reputation of the brand which is selling the product. Apple has decided to create its own distribution network with the opening of the Apple Store. Apple has another advantage, in fact, because customers feel a desire for Apple brand products due to brand loyalty, which is then profited from by the company. Customers therefore have no bargaining power over Apple. In contrast, the example of the price of a litre of milk in France, supermarkets continuously drop the price of milk lower and lower. On the other hand, milk producers who seek to resell their milk must sell it to large retailers, they have no choice but to accept the conditions of the latter, which poses a problem: producers lose money on every litre sold. In this case, the customers have a very high level of bargaining power. In 2007, three major French brands (Leclerc, Carrefour, Intermarché) held a 60% market share of French hypermarkets. Therefore, suppliers must comply with the stringent conditions imposed by distributors (price reductions, delivery times ...)

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