Porter’s Five Forces is a framework developed by Michael E. Porter that helps analyze the competitive environment of an industry. It examines five key factors that affect the nature of competition within an industry:
- Threat of New Entrants: This force examines how easy or difficult it is for new competitors to enter the industry. Key questions include:
- How high are the barriers to entry in the industry?
- What is the level of regulation and how does it impact new entrants?
- What is the level of brand loyalty and how does it affect new entrants?
- Bargaining Power of Suppliers: This force looks at the power suppliers have over businesses in the industry. Key questions include:
- How concentrated are the suppliers, and how does this affect their bargaining power?
- What are the substitution possibilities for the suppliers’ products?
- How important is the industry to the suppliers?
- Bargaining Power of Buyers: This force explores the power that customers have in the market. Key questions include:
- How price sensitive are the buyers in the industry?
- How much bargaining power do the largest customers have?
- Are there any substitute products available for buyers?
- Threat of Substitute Products or Services: This force examines the likelihood of customers finding a different way of doing what your business does. Key questions include:
- How easy is it for customers to find substitute products or services?
- How does the quality and price of substitutes compare to industry products?
- Are there trends indicating an increase in the use of substitutes?
- Intensity of Rivalry Among Existing Competitors: This force looks at the degree of competition within the industry. Key questions include:
- What is the number and capability of competitors in the industry?
- How does the rate of industry growth affect competitive intensity?
- What are the bases of competition (e.g., price, quality, innovation)?
By analyzing these five forces, businesses can gain a comprehensive understanding of their competitive environment, which is crucial for developing effective strategies.
Links
- SMARTACRE Goals: Advancing SMART goals into SMARTer goals.
- Eisenhower Matrix – 80/20 Rule: Perfecting Priorities.
- SWOT Analysis: Understanding strengths, weaknesses, opportunities, and threats.
- PESTEL Analysis: Examining macro-environmental factors that might impact business units.
- Porter’s Five Forces: Gaining insights into industry competitiveness and profitability potential.
- McKinsey 9-Box Matrix: gaining insights into market attractiveness and competitive strengths.