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Porter's 5 Forces Analysis

Porter's 5 Forces model is a strategic analysis tool for analysing the competitive forces in an industry.

Sample issues to consider include:

  • Bargaining power of suppliers
    • Extracting a higher margin
    • Forward integrating
    • Firm:supplier concentration ratio
    • Employee solidarity
  • Bargaining power of Buyers/distributors
    • Price sensitivity
    • Backward integration
    • Switching costs
    • Buyer:firm concentration ratio
  • Threat of new entrants
    • Industry profitability
    • Barriers to entry (scale-based, relationship-based or legal)
    • See also: A Taxonomy of Moats
  • Threat of substitutes
    • Disruptive change
    • Perceived level of differentiation
    • Level of price/performance of substitute
    • Ease of substitution (fungibility)
  • Rivalry
    • Concentration & stability
    • Industry growth rates
    • Scarcity of resources
    • Differentiation versus commoditisation

Some references add a 6th force, which may either be complementors, the government, regulators, disruptors or the public.   In truth, you could extend the model to incorporate any significant stakeholder category.

When doing a Porter 5 Forces analysis, don't ignore that the various players may interact with each other. They could even collude. And they are likely to respond to strategic changes from the firm and from each other.   The competitive forces in the 5 forces analysis may be constantly shifting.   Game theory may help to uncover the likely patterns in such unstable competitive fields.


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