Five Forces Analysis
Michael Porter’s “Five Forces Analysis” is a framework for business development, and one of the most often used business strategy tools. The framework identifies five fundamental forces that determine the competitive force of a market. These forces include the following:
1. The intensity of competitive rivalry
2. The threat of the entry of new competitors
3. The threat of substitute products
4. The bargaining power of consumers
5. The bargaining power of suppliers
These five forces directly affect your company’s ability to serve your customers and make a profit. A change in any of these forces generally requires your company to re-assess your competitive strategies.
Force 1: The Degree of Rivalry
Rivalry amongst existing competitors stands at the center of these five forces. How intense is competition? One of the key factors relates to price competition.
Force 2: The Threat of Entry
The threat of new entry can bring considerable latent but effective competitive pressure to a market, unless barriers to entry exist. Entry conditions will determine how difficult, or costly, it is for new firms to enter a market.
Force 3: The Threat of Substitutes
The availability of substitutes is generally a matter of degree since most products or services are substitutable in at least some attributes.
Force 4: Buyer Power
The bargaining power of buyers can be an important determining force of an industry’s competitive situation.
Force 5: Supplier Power
The bargaining power of suppliers to an industry can impact the competitiveness of an industry.