Porter’s Five Forces

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Porter’s Five Forces

What Is a Porter’s Five Forces Framework?

Porter's five forces framework is a management tool used to analyze the competitive environment of a business or industry. It is a tool that firms can use to make better business decisions, by looking at five main forces that affect their competitive position in the market:

  • Supplier Power: The ability of suppliers to influence prices and terms of sale

  • Buyer Power: The ability of buyers to influence prices and terms of sale

  • Competitive Rivalry: The strength of competition among existing players in the market

  • New entrants: The ease of entry into the market by potential new competitors

  • Substitutes: The existence of alternative products or services which can satisfy the same need

By analyzing the five forces, firms can develop strategies to increase their competitiveness and profitability.


1. Competitive Rivalry

Assess the potential impact of competitive rivalry. Gauge competitive intensity in terms of pricing pressures, competitive differentiation, etc.

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2. Supplier Power

Understand the bargaining power of suppliers. Identify the impact of supplier pricing, supplier concentration and availability, and pressure points that suppliers could exercise in the marketplace.

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3. Buyer Power

Evaluate the bargaining power of buyers. Estimate the influence that customers have on pricing and impacting the industry. Consider the number of customers, their buying power, switching costs and availability of substitutes.

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4. New Entrants

Assess threats from new entrants. Assess how easy or difficult it would be for new players to enter the industry, including the impact of economies of scale, regulatory barriers, access to capital and distribution channels.

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5. Substitutes

Consider the impact of substitute products. Identify the presence of substitute products, their performance and price, and determining the overall impact of substitutes on the industry.

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6. Overall Impact

Analyze the overall impact of the five forces

Examine the impact of the five forces, and how they shape industry structure and profitability. Consider making changes to internal strategy or operations to adjust to changes in the overall landscape.

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