Porter’s Five Forces is a framework developed by Michael Porter to analyze the competitive dynamics of an industry. It provides a structured approach to understanding the factors that shape competition within an industry and helps to identify opportunities and threats that may impact a company’s profitability.
The framework consists of five key forces that determine the attractiveness of an industry: the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and intensity of competitive rivalry. By analyzing these forces, companies can better understand the competitive landscape they operate in and develop strategies to gain a competitive advantage.
Developed by Michael E. Porter in “How Competitive Forces Shape Strategy” from 1979.
In this template, we will go through each of the five forces and provide a set of questions to help guide your analysis.
1. Threat of New Entrants
- What are the barriers to entry in this industry? (e.g. economies of scale, high capital requirements, brand loyalty, etc.)
- Are there any government regulations or licensing requirements?
- Are there any advantages held by existing competitors that would make it difficult for new entrants to gain a foothold in the market?
2. Bargaining Power of Suppliers
- Who are the key suppliers in this industry?
- Are there many suppliers or just a few dominant ones?
- How easy is it for suppliers to switch to other buyers or for buyers to switch to other suppliers?
- Are there any unique or specialized inputs that suppliers provide?
3. Bargaining Power of Buyers
- Who are the key buyers in this industry?
- Are there many buyers or just a few dominant ones?
- How easy is it for buyers to switch to other suppliers or for suppliers to switch to other buyers?
- Are there any unique or specialized products or services that buyers demand?
4. Threat of Substitutes
- Are there any alternative products or services that could replace what this industry offers?
- How easy is it for buyers to switch to these substitutes?
- Are there any cost or quality advantages to using the industry’s products or services over substitutes?
5. Intensity of Competitive Rivalry
- Who are the key competitors in this industry?
- What are their market shares?
- How do they differentiate themselves from one another?
- Are there any industry trends or changes that could affect the level of competition?
Conclusion
- Based on the analysis of the five forces, what is the overall attractiveness of this industry?
- What are the main opportunities and threats facing the industry?
- What strategies could be used to mitigate threats and take advantage of opportunities?
