Porter’s Five Forces is a framework for analyzing various industries and business strategy development implemented by Michael Porter in 1979.
Porter’s Five Forces identifies five forces that determine the level of competition and, hence, the attractiveness of doing business in specific industries.
Thus, this paper introduces Porter’s Five Forces. It observes and discusses the five forces and their usage during qualitative assessments.
To start with, Porter’s Five Forces includes as follows:
ïƒ˜ The threat of new entrants (competitors);
Markets, bringing high profits, attract new players (competitors). As a result, there are many new players who significantly reduce profits. If you do not take any actions to block or impede the entrance of new players, your profits will be gradually reduced with increasing levels of competition.
ïƒ˜ The threat of substitute products;
The availability of substitute products, the propensity of consumers to these products and services may increase due to higher prices.
ïƒ˜ The market power of buyers (customers);
The consumers are able to influence a company or a firm (consumer price sensitivity).
ïƒ˜ The market power of suppliers;
Suppliers of different services, such as raw materials, and other components may affect a company. Moreover, suppliers can reject to cooperate with a company or, for example, to set high prices for unique products and services.
ïƒ˜ The level of competition (rivalry).
For most industries, it is a determining factor that influences the level of competition in the industry. Sometimes, the players compete aggressively, but sometimes, they use a marketing strategy that is called “non-price competition” in marketing, innovation, business models, etc.
To sum up the above-mentioned information, it is possible to draw a conclusion that Porter, a professor of business administration, emphasized that five forces model must be applied only for the industry as a whole. The model is not intended to be used for industry groups or any part of the same industry
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 57 (2), 137-145.