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the Five Forces model helps business people understand the relative attractiveness of an industry and the industry's competitive pressure in terms of buyer power, supplier power, threat of substitute products and services, threat of new entrants, rivalry among existing competitors.

buyer power

high when buyers have many choices and low when their choices are few competitive advantages are created to get buyers to stay with a given company.

ex: Netflix- set up and maintain your movie list

supplier power

high when buyers have few choices and low when choices are many.

threat of substitute products and services

high when there are many alternatives for buyers and low when there are few alternatives.

ex: switching cost can reduce threat, switching to another product or service, long term contract with financial penalty

threat of new entrants

high when it is easy for competitive to enter the market and low when entry barriers are significant.

ex: Chase vs. JPB

Entry barrier

product or service feature that customers have come to expect and that must be offered by an entering organization

ex: Banking- Atms, online bill pay, etc.

Rivalry among existing competitors

high when competition is fierce and low when competition is more complacent.

ex: trend is toward more competition in almost all industries.

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