The Porter's 5 Forces Model is an industry research "tool used to analyze a market or industry and determine its competitiveness." It's an essential tool in industry research because it allows a business to determine the "intensity of competition and potential profitability, heling them better understand where power lies in their sector."
To access Michael E. Porter's "The Five Competitive Forces that Shape Strategy," search for the article title and "Harvard Business Review" in EBSCO Cross Search.
Porter, M. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93.
The Five Forces
- Competitive Rivals
- The number of competitors - think both big corporations and small, local or privately held companies
- Industry growth - competition can be fierce in both a growing and declining industry
- Similarities in what's offered - does your company or brand have a unique offering?
- Exit barriers - what are the barriers for a company to exit the industry? (Assets, costs, emotional attachment, contracts)
- Fixed costs
- Potential for New Entrants in an Industry
- Economics of scale
- Product differentiation - customer loyalty is a big consideration!
- Capital requirements - i.e. startup costs for new businesses
- Access to distribution channels
- Regulations - licenses, safety standards, other regulatory standards
- Switching costs
- Supplier Power
- The number of suppliers
- Uniqueness - if the product is unique or not easy to substitute
- Switching costs - including $$ and time
- Forward integration
- Industry importance
- Customer Power
- The number of buyers - fewer buyers = more power
- Purchase size - consider bulk buying from major retailers
- Switching costs - competitive terms, etc.
- Price sensitivity
- Informed buyers
- Threat of Substitutes
- Relative price performance - if a substitute's cost is lower AND its performance is comparable or better, customers are likely to switch
- Customer willingness to go elsewhere - how easy is it for customers to switch?
- The sense that products are similar
- Availability of close substitutes
Gratton, P. (2025, June 2). Porter's Five Forces explained and how to use the model. Investopedia. https://www.investopedia.com/terms/p/porter.asp
