Five Force Model

Type
Essay
Pages
6
Word Count
1734
School
N/A
Course
N/A
Five Forces Model
“How Michelle Phan Built A $500 Million
Company”
Cooper Reff
With technology always moving forward new products are being challenged in the
market place every day. However, the success of one man/ladies idea is relied on much more
than that great idea alone. What is to say your product is better than the others in that same
industry? In order for a product idea or business to be successful managers must think “strategy.”
Threats and opportunities exist within each industry environment. Porters fives forces model
provides a guideline to aid in the analysis of an environment. An article release on forbes.com
titles “How Michelle Phan Built A $500 Million Company” shows how a strategic plan led
Michelle to great success. By applying the five forces in Porters model; risk of entry, rivalry
among established companies, bargaining power of buyers/suppliers, and threat of substitutes,
one can see how environment analysis is important in the success of the business.
“Doubters were not convinced there was an appetite in a crowed subscription
marketplace” (Robehmed, 2015). That statement made in the article tells us about the risk of
potential competitors, which is the first force to look at in Porters model. Potential competitors
are “companies that are not currently competing in an industry, but have the capability to do so if
they chose” (Hill, Jones, Schilling, 2013) Michelle Phans business, Ipsy, is what the article calls
a “subscription makeup sampling business” (Robehmed, 2015). Other known brands in the same
type of business include Dollar Shave Club, Mary Kay and Birch box. When analyzing the risk
of potential competitors it is important to take into account the entry barriers which provide a
height that new entrants must climb in order to compete in such a market. From the article the
assumption is made from the term “crowded” that there are already more than enough people
trying to do the same thing as Michelle. We can further apply the first force to the article by
looking at what are the important barriers to consider in the entry of new competitors. An
economy of scale refers to unit costs going down when an industry continues to grow in size. In
an industry whose competitors are Dollar Shave Club and Birch Box it is easy to assume these
companies have established economies of scale. For starting companies to obtain the economies
of scale of established companies they require capital. Fortunately for Michelle she had already