below:
Explanation:
The analysis model referred to in the question is Porter’s Five Forces, a framework developed by
Michael Porter to assess the competitive environment of an industry and understand the forces that
influence an organization’s ability to compete effectively. In the context of the CIPS L5M4 Advanced
Contract and Financial Management study guide, Porter’s Five Forces is a strategic tool used to
analyze the marketplace to inform procurement decisions, supplier selection, and contract
strategies, ensuring financial and operational efficiency. Below are the five parts of the model,
explained in detail:
Threat of New Entrants:
Description: This force examines how easy or difficult it is for new competitors to enter the market.
Barriers to entry (e.g., high capital requirements, brand loyalty, regulatory restrictions) determine
the threat level.
Impact: High barriers protect existing players, while low barriers increase competition, potentially
driving down prices and margins.
Example: In the pharmaceutical industry, high R&D costs and strict regulations deter new entrants,
reducing the threat.
Bargaining Power of Suppliers:
Description: This force assesses the influence suppliers have over the industry, based on their
number, uniqueness of offerings, and switching costs for buyers.
Impact: Powerful suppliers can increase prices or reduce quality, squeezing buyer profitability.
Example: In the automotive industry, a limited number of specialized steel suppliers may have high
bargaining power, impacting car manufacturers’ costs.
Bargaining Power of Buyers:
Description: This force evaluates the influence buyers (customers) have on the industry, determined
by their number, purchase volume, and ability to switch to alternatives.
Impact: Strong buyer power can force price reductions or demand higher quality, reducing
profitability.
Example: In retail, large buyers like supermarkets can negotiate lower prices from suppliers due to
their high purchase volumes.
Threat of Substitute Products or Services:
Description: This force analyzes the likelihood of customers switching to alternative products or
services that meet the same need, based on price, performance, or availability.
Impact: A high threat of substitutes limits pricing power and profitability.
Example: In the beverage industry, the rise of plant-based milk (e.g., almond milk) poses a substitute
threat to traditional dairy milk.
Competitive Rivalry within the Industry:
Description: This force examines the intensity of competition among existing firms, influenced by the
number of competitors, market growth, and product differentiation.
Impact: High rivalry leads to price wars, increased marketing costs, or innovation pressures, reducing
profitability.
Example: In the smartphone industry, intense rivalry between Apple and Samsung drives innovation
but also squeezes margins through competitive pricing.
Exact Extract Explanation:
The CIPS L5M4 Advanced Contract and Financial Management study guide explicitly
