Porter's Five Forces
A model for analyzing the competitive forces within an industry.
Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. Five Forces analysis is frequently used to identify an industry's structure to determine corporate strategy.
The five forces are: competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of customers.
- Type: Business Framework
- Core Idea: Competitive Analysis
- Key Elements: Five Competitive Forces
The Five Forces
Understanding the competitive landscape.
Competitive Rivalry
This force examines how intense the competition is in the market. It is determined by the number of existing competitors and what each competitor is capable of doing.
Threat of New Entrants
This force considers how easy or difficult it is for competitors to join the marketplace in the industry being examined. The easier it is for a new company to enter an industry, the more competitive the industry will be.
Threat of Substitutes
This force studies how easy it is for consumers to switch from a business's product or service to that of a competitor. It looks at the number of competitors, the price of their products, and the quality of their products.
Bargaining Power of Suppliers
This force analyzes how much power a business's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business's profitability.
Bargaining Power of Customers
This force examines the power of the consumer to affect pricing and quality. Consumers have power when there aren't many of them, but lots of sellers, and when it is easy to switch from one business's product or service to another.
Implementation & Strategy
Costs, timelines, and strategic considerations for adopting Porter's Five Forces.
Estimated Project Costs
Porter's Five Forces is a strategic planning tool, so it doesn't have a direct cost. However, there are costs associated with the time and resources that you dedicate to the process. These costs can range from a few hundred dollars to several thousand dollars, depending on the size and complexity of the organization.
Implementation Strategy
A typical Porter's Five Forces analysis starts with a brainstorming session to identify the five forces in your industry. From there, you can analyze each force to determine its strength and its impact on your business. The final step is to develop a strategic plan to address the issues that were identified.
Comparisons
How Porter's Five Forces stacks up against other business frameworks.