If an increase in price results in a relatively large decrease in demand for the product, the firm cannot easily increase its profit margin. Porter’s 5 forces are customers, human resources management, supply, competitive advantage, large production, or purchasing power.
1. customers
Since the quantity demanded changes because of an increase in price, the factor here is customers. Due to the law of demand, the customers decrease quantity when prices increase.
2. human resources management
Human resources management is concerned with areas related to personnel such as employee training, education etc. This department is very significant in any business enterprise because it directly deals with the people of the business.
3. supply
Labour unions relate to the supply side of labor markets. When labor unions have strict control over labor supply, then manufacturers cannot influence the wage rates significantly. Due to inequality between labor demand and supply, they have to pay higher wages.
4. competitive advantage
Simon sells products with higher perceived values. This implies that he has a competitive advantage over his competitors since the competitors lack this value perception by the customers.
5. large production or purchasing power
Economies of scale refer to taking advantage due to large scale. The advantage can be in terms of lesser costs since costs get significantly divided among large production or there is greater purchasing power within the business.
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