Porters 5 forces is all about assessing an organisation’s competitive environment. It is a useful tool for marketeers to better understand the threat of competitive forces. It was originally created by Michael Porter in 1985 and it has since been adapted and changed by a number of marketing professionals and academics.
This blog post shall describe the model in order to hopefully clarify how to use it. The following diagram has been created in order to visually display the information of this post.
In his model, Porter suggests their are 5 competitive forces that an organisation will face. The following sections identify these forces and pose a number of questions for you to consider. Once all of these factors have been considered, you can then properly assess the potential impacts of each competitive force.
Bargaining Power of Customers
- Are there few customers in the marketplace?
- Are your products significantly different?
- Are you a key supplier to your customer?
Bargaining Power of Suppliers
- How much bargaining power do suppliers have?
- Do suppliers have the power to stop supplying to you?
- Is the cost for switching to another supplier high?
- Is your company’s business key the suppliers success?
- Is the supplier a brand leader?
Threat of New Entrants
- What are the barriers to entering the market?
- Are their high costs associated with entering the market?
- Is it a large or small market?
- Do existing competitors benefit from economies of scale?
Threat of Substitutes
- Can your product easily be substituted for another?
- Are there any other alternatives? E.g. alternative ways to spend recreational time: Cruise vs Motorbike.
Competitor Rivalry
Having considered all of the previous factors, it is then important to consider the overall competitor rivalry. The intensity of this will depend on a number of factors including:
- Are they direct or indirect competitors?
- What are their strategic goals?
- How are they likely to respond to your activities?
Overall, I find porters 5 forces to be a very comprehensive model for assessing the competitive forces an organisation shall face. This should be reviewed periodically to identify any new competitive threats your organisation may face.
I hope you have found this post useful and I hope you have a great day.
