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Dear Tutor,
I am having problem with this question can you help me please
Using Porter’s five forces model to examine the profitability of an industry which of the following will lead to higher profitability (assuming everything else being equal)?
A. An increase buyer power
B. A new entrant into the industry
C. A new supplier to the industry
D. The development of an alternative product which meets the needs of the industries’ customersIt’s a question from Kaplan. It says that the answer is C but don’t understand why. I’m more incline towards the answer D. I will be grateful if you could help me with this question. Thanks in advance
C If there is a new supplier of raw material or components, then this will tend to reduce the price of those goods because there is more intense competition and, initially, the new supplier is likely to offer good deals to get a foothold in the market. Lower purchase prices will increase profitability.
D A substitute product will give customers more choice: stay with the old technology or move to the new product. The substitute product is therefore likely to put downward price pressure on the old products to prevent mass defection. This would lower the old product’s profitability.
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