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Hi
For porters five forces what does it mean by switching costs for threats to new entrants?
Does it mean that new entrants tend to always change suppliers as they have never been in this market so its almost like analysing its supplies to see if thats what there after ( eg cost, quality), it is a threat because there products launched to the market may be different as what was produced previously due to the changing of suppliers.Thank you
Hi Karen
I’m just a student on this subject so can’t profess too much knowledge. As far as I’m concerned Porter’s 5 Forces simply identifies how profitable a business is by making reference to the 5 other elements. The “New Entrants” is simply an analysis which would be undertaken to see how easy NE’s can make it into the market (thus potentially having an impact of the profitability of an existing business). As a student studying the F1 paper I can’t see that we will need any greater knowledge than knowing what the model is used for an identifying the key components and relating them back to a scenario if it does come up in the exam.
@ Karen
New entrants are a nuisance as they usually enter the market with a splash of publicity and a flurry of special offers. Existing suppliers have to retaliate.
A switching cost is usually applied to a buyer/customer. There can be a certain amount of inconvenience and risk is a buyer switches supplier ie to a competitor of the company. Switching costs can provide a safeguard against new entrants stealing customers: a new entrant will usually be a riskier proposition than an established vendor with a good reputation. Switching costs can be established by giving your customer really good service to accentuae the risk and inconvenience of switching.
so switching costs means customers switch suppliers and if a new entrant enters the market there is a chance that new entrant can steal customers, but on the other hand because the company is new and had just entered the market, there is a risk that buyers will just stick at there current supplier which are established firms.
@karen: a switching cost is a cost to customers that inhibits them from switching to a new supplier.
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