Porters Five Forces

Overview

ConsolidationEndgame Curve

Blue Ocean
Strategy

Marketing Mix

Porters Five
Forces

SWOT Analysis

Product
Lifecycle

BCG Matrix

PEST Analysis

Consumer
Adoption Curve

Developed by Michael Porter, recognized as the father of modern business strategy, Porters Five Forces is one
of the most well known classic strategy frameworks.
Porters Five Forces is a framework used for industry analysis and understand the various dynamics amongst industry
players and external forces.
It is based on the theory that competition in any industry is dependent on 5 basic forcesPotential Entrants, Internal
Rivalry, Suppliers, Buyers, and Substitutes (or Complements). The collective strength of these forces determines the
ultimate profit potential and allocation in the industry.
Using this framework, we can determine how attract it is to compete in any industry, as well as what the overarching
strategy should be to compete successfully in the industrysuccess is determined by the ability to develop a
sustainable competitive advantage.
It can also be used to assess which industry trends may pose as opportunities or threats.

Several important economic and technical characteristics of an industry are critical to the
strengths of each competitive force.

Porters Five Forces

5 Forces Explained and Framework Diagram

ConsolidationEndgame Curve

Blue Ocean
Strategy

Marketing Mix

Porters Five
Forces

SWOT Analysis

Product
Lifecycle

BCG Matrix

PEST Analysis

Consumer
Adoption Curve

Threat of New Entrants

Barriers to entry:
Economies of scale (including shared resources)
Product differentiation (proprietary)
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected reaction of incumbent

Competitive Advantage
Lower Cost

Competitive
Scope

Differentiation

Broad

Cost
Leadership

Differentiation

Narrow

Cost
Focus

Differentiation
Focus

Bargaining Power of Suppliers

Intensity of Rivalry

Bargaining Power of Buyers

A supplier group is powerful when:

It is dominated by a few companies and is more
concentrated than the industry it sells to.
There are no substitute products.
The industry is not an important customer.
Its products are important to the industry.
Products are differentiated or suppliers have built
up switching costs.
It poses a credible threat of forward integration.

Intense rivalry results from:

Numerous or equally balanced competitors
Slow industry growth
High fixed or storage costs
Lack of differentiation or switching costs
Capacity augmented in large increments
Diverse competitors
High strategic stakes
High exit barriers

A buyer group is powerful when:

It is concentrated or purchases large volumes relative
to seller sales.
The products represent a significant fraction of the
buyers costs or purchases.
The products are standard or undifferentiated.
It faces few switching costs.
It earns low profits.
It poses a credible threat of backward integration.
The bought product is unimportant.
It has full information.

Pressure from Substitute Products

Exit Barriers
L

Entry
Barriers

L
H

Low, stable
returns

Low, risky
returns

High,
stable
returns

High, risky
returns

Search for products that can perform the same

function.
Assess buyers propensity to substitute.
Focus on those that:
Are improving their price performance trade-off
compared with the industries products.
Require low switching costs.
Are produced by industries earning high profits.

Take offensive or defensive actions to create a

defensible position against the forces:
Positioning the firm so its capabilities provide the
best defense
Influencing the balance of forces through strategic
moves
Anticipating shifts in the factors underlying the
forces and responding to them

ConsolidationEndgame Curve

Blue Ocean
Strategy

Marketing Mix

Porters Five
Forces

SWOT Analysis

Product
Lifecycle

BCG Matrix

PEST Analysis

Consumer
Adoption Curve

Porters Five Forces

More Information
This framework is explained in detail in the
document Porters Five Forces

DETAILS

Flevy has multiple documents that discuss and

teach this framework in detail:

File size: 800KB

Porters 5 Forces Model and Application

Seller: LearnPPT
Number of Slides: 26

Complete Business Frameworks Guide

RELATED DOCUMENTS/FRAMEWORKS
Growth Strategy Toolkit - https://flevy.com/browse/business-document/growth-strategy-208
Blue Ocean Strategy - https://flevy.com/browse/business-document/blue-ocean-strategy-the-peaceful-strategy-114
Industry Analysis - http://flevy.com/browse/business-document/industry-analysis-773

Learn more about Porters Five Forces here:

https://flevy.com/browse/business-document/porters-five-forces-235