Porter’s Five Forces Model

Porter’s Five Forces Model

Introduction

Porter’s Five Forces is a representation that recognizes and surveys five competitive forces that give shape to every industry by identifying the industry’s weaknesses and strengths. Five Forces analysis usually is used to realize the structure of an industry. It assists in getting to know the kind of competition within the industry; thus the manager can able to know if the company will experience long-term profitability (Gerard, 2018). eBay is one of the leading industries in the e-commerce industry, globally. The company has succeeded in satisfying clients’ needs in the field of online business.

Michael E. Porter’s Five Forces analysis model is an external evaluation tool that realizes the forces of competition and their strengths when it comes to business performance within the internal and external surroundings of an industry (Gerard,2018). Therefore, in the case of eBay, the Five Forces analysis model consists of the effects of competitive rivalry, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitutes, and the threat of new entry on the online marketplace. An external factor, like for example, the low cost of new entry, threatens the company’s competitive advantage.

This aspect of Porter’s Five Forces analysis model examines the level of competitive rivalry in eBay among other firms involved in e-commerce. Factors like, for example, a large number of similar firms, low switches in the matters of costs, and little quality differentiation are the main reasons that are significantly contributing to substantial magnitude in terms of competition against eBay. According to Gerard (2018), firms like, for example, Amazon, give stiff competition to eBay. The quality of eBay’s classified services is similar to those of the competitors. It, therefore, increases the magnitude of competitive rivalry.

The influence of consumers on the e-commerce industry is assessed in Porter’s Five Forces analysis. In eBay’s case, the customers have a reliable bargaining power based on factors like level of switching of costs whereby eBay is strict as compared to Amazon hence making consumers use Amazon instead, the intensity of price sensitivity whereby in case eBay increases their prices, their clients may consider shopping with other prominent online business platforms instead and the quality of information about the products thus in case eBay has minute information about a product, customers may prefer other prominent online trading platforms instead (Nurlansa et al., 2016)

Porter’s Five Forces analysis model looks into suppliers’ impact on the industry environment. The level of intensity of the bargaining power of eBay’s suppliers affected by factors like; the moderate population of the suppliers whereby the company is limited in shifting from one supplier to another, the low level of integration of suppliers with the online platforms shows their weak control in the matters of distribution of their products to the e-commerce industry and the low population of suppliers who delivers in the industry.

The impact of new entrants is discussed in the aspect of Porter’s Five Forces analysis model. New entrants can lead to a reduction in the company’s market share and revenues. Factors like; reduced cost of entry, low cost of brand development, high economies of scale, among other factors, contribute to the new entrants in the online industry.

In Porter’s Five Forces analysis model, the examination of the influence of substitutes in the industry is done. The e-commerce industry environment is assessed. Substitution can cause a reduction in eBay’s revenues by influencing vendors and consumers into using substitute services.

EBay’s top management needs to address the issue about pricing and the flexibility of the firm in changing the prices so as for them to keep up with other leading online markets. Managers at eBay should come up with strategies to ensure that they are able to price their products to avoid losing their clients to other online trading platforms.

The major critical success factors in the online business are the flexibility of the firms in; the pricing to suit the clients’ needs, detailed information about the products, differentiation, and quality of the product. According to Nurlansa et al. (2016), online businesses should consider these factors so as to ensure the success of the industry.

Conclusion

Porter’s Five Forces analysis model is crucial and should be applied in online businesses to ensure the effective operation of the businesses. In this case, eBay, when the model is effectively employed in the firm, the firm will be able to compete effectively and maintain their clients.

References

Gerard, H. T. (2018). The Relevance Of Porter’s Five Forces In Today’s Innovative And Changing Business Environment.

Nurlansa, O., & Jati, H. (2016). Analysis porter’s five forces model on Airbnb. Elinvo (Electronics, Informatics, and Vocational Education), 1(2), 84-96.