A company has to find a sustainable competitive advantage--a basis on which to identify a relative superiority over competitors and to claim customers. To determine this competitive advantage, a firm must recognize and counteract the following five forces:
Threat of entry. The intensity of competition depends first on the threat of new entries into the market. The more easily new competition can enter, the more intense the competition.
Intensity of rivalry among existing competitors. Rivalry manifests itself in tactics like price competition, advertising battles, and increased customer service.
Pressure from substitute products. If few substitutes are available, rivalry is minimized, so the industry is less cutthroat and more attractive to current competitors.
Bargaining power of buyers. Buyers have more stroke when (1) they buy in bulk and (2) products are undifferentiated or standardized.
Bargaining power of suppliers. Suppliers have greater power when they are more concentrated and dominated by a few firms.
