Five Forces Analysis

Five Forces Analysis

The Five Forces Analysis template provides a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers.

1. The threat of the entry of new competitors: Profitable markets that yield high returns will attract new firms. As more entrants emerge, the profitability will decrease for all firms unless the entry of new firms can be blocked by incumbents.

2. The threat of substitute products or services: The existence of alternative products increases the propensity of customers to switch to the alternatives.

3. The bargaining power of customers (buyers): The bargaining power of customers refers to the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

4. The bargaining power of suppliers: The bargaining power of suppliers refers to the power that suppliers may exert over the firm when there are few substitutes.

5. The intensity of competitive rivalry: For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Source: Mindjet