Porter's Five Forces Model - Example

The paper "Porter’s Five Forces Model" is a great example of a report on management. This model was developed by Michael Porter who argued the industry is affected by five forces that affect the attractiveness of the industry. This model assesses the levels of risks, profitability, and opportunities based on the five key factors in the industry.

Companies can use this model to develop strategic competence over their competitors in the industry in a healthy competitive environment. The five forces that determine the long-run attractiveness of the industry are supplier power, entry and exit barriers, substitutes, buyer power and rivalry (Porter,2008).

Power of suppliers

Supplier power is very high in this industry. Expedia relies heavily on its suppliers as well as other travel intermediaries which bring about low bargaining power. In recent years, Expedia has been experiencing a fall in its revenue. This is unfavorable for Expedia considering that a large share of its revenue is from the global distribution and negotiated compensation from travel suppliers. In the recent past, many air travel companies and hotels have eliminated or reduced payment to Travel agents as well as other intermediaries with the aim of reducing the overall cost of production.

Power of buyers:

Buyer power in this industry is very high. Consumers in this industry are particularly skeptical of the company they are going to get services from. Consumers have an array of choices from whom to choose. With the availability of the internet, consumers have the ability to compare attributes and prices of one supplier to another. Buyers can now access a lot of information online before deciding on which holiday package to purchase. As such, the threat of switching from one supplier to another is very high.

Barriers to entry:

In this industry, the barriers to entry and exit are very low. Despite this factor, it is still very difficult for new entrants to scale up since already existing companies have their own distribution channels. As a result of fragmented markets, the travel agents do not have access to the already existing distribution channels. The low levels of efficiency in the industry make it easy for new entrants to establish small startups. However, they have to negotiate for profitable deals with the existing companies.

Availability of substitutes

Threats of new substitutes in this industry are high. This is because of the large number of airlines which have adopted online booking. With the increasing competition, companies are resulting in online booking on their branded websites. As indicated earlier, the barriers to entry are very low, and such many startup companies.

Competition:

The rivalry is very intensified in this industry. Expedia's leading position in the market is under pressure. The industry is a large one and a highly fragmented one. Expedia online website competes with other online as well as offline travel agencies that offer services from multiple suppliers and from suppliers who offer their own service and sell them directly to the customers. Expedia competes with car rentals, hotel suppliers, and airlines that sell to consumers directly either through the websites or through telephone. Some of the major competitors of Expedia include Travel Web and Orbits. For the classic vacation business, Expedia’s major competitors include Navigant International and American express. A high level of rivalry could erode Epedia’s market share in the future.

Generic Strategy: Value chain

Porters Value chain explains the activities inside and outside a company that combined make up a product. These activates are categorized into primary activities and secondary activities. Primary activities are those involved with the direct creation of goods and services and include:

• Inbound logistics
• Outbound logistics
• Operations
• Marketing and sales
• Service

Support activities reinforce the primary activities and include:

• Organization
• Technology
• Human resource management
• Purchasing

This model indicates that every company’s vision and strategic plan must be supported by this set of activities. Expedia value proposition is in line with the value chain activities.