Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

Political Legal

Technological Natural

Economic

Socio - Cultural

The collective strength

of these forces
determines the ultimate
profit potential in the
industry, where profit
potential is measured in
terms of long run return
on invested capital.

-- Michael E. Porter, 1980

2

Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

An assessment of
how easy it is for

attract new

suppliers to drive

entrants, which

up prices

erodes profitability

Where close
substitute products
exist in a market, it
increases the
likelihood of
customers
switching to
alternatives in
response to price
increases
3

Profitable markets

Political Legal

Technological Natural

Economic
An assessment of
how easy it is for

Socio - Cultural

buyers to drive
prices down

Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

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Potential
Entrants
Industry
Competitors
Suppliers

Buyers
Rivalry
Among
Existing
Firms

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Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

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Potential
Entrants
Industry
Competitors
Suppliers

Buyers
Rivalry
Among
Existing
Firms

Substitutes

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Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

Potential
Entrants
Industry
Competitors
Suppliers

Buyers
Rivalry
Among
Existing
Firms

Substitutes

New entrants to an
industry bring new
capacity, the desire
to gain market share,
and often substantial
resources.

-- Michael E. Porter, 1980

6

Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

Potential
Entrants
Industry
Competitors
Suppliers

Buyers
Rivalry
Among
Existing
Firms

Substitutes

Buyers compete with the

industry by forcing down
prices, bargaining for
higher quality or more
services, and playing
competitors against
each other -all at the
expense of industry
profitability.

-- Michael E. Porter, 1980

7

Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

Potential
Entrants
Industry
Competitors
Suppliers

Buyers
Rivalry
Among
Existing
Firms

Substitutes

Substitutes limit the

potential returns of an
industry by placing a
ceiling on the prices
firms in the industry
can profitably charge.

-- Michael E. Porter, 1980

8

Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

Potential
Entrants
Industry
Competitors
Suppliers

Buyers
Rivalry
Among
Existing
Firms

Substitutes

Suppliers can exert

bargaining power over
participants in an
industry by
threatening to raise
prices or reduce the
quality of purchased
goods and services.

-- Michael E. Porter, 1980

9

Porters Five Forces Model

FORCES DRIVING INDUSTRY COMPETITION

Potential
Entrants
Industry
Competitors
Suppliers

Buyers
Rivalry
Among
Existing
Firms

Substitutes

Rivalry among existing

competitors takes the
familiar form of
jockeying for position
-using tactics like price
competition, advertising
battles, product
introductions, and
increased customer
service or warranties.

-- Michael E. Porter, 1980

10

Porters Five Forces

WORKSHEET 1
THREAT OF NEW ENTRY

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

SUPPLIER POWER

COMPETITIVE RIVALRY

BUYER POWER

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

THREAT OF SUBSTITUTION

11

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

Porters Five Forces

WORKSHEET 2

THREAT OF NEW ENTRY

Low / Medium / High

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

THREAT OF
SUBSTITUTION
Low / Medium / High

12

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

COMPETITIVE RIVALRY
Low / Medium / High

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

SUPPLIER POWER
Low / Medium / High

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

BUYER POWER
Low / Medium / High

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

Porters Five Forces

WORKSHEET 3 1/3

Ability to
control
COMPETITIVE RIVALRY

13

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

Impact
Level

Risk
Level

Porters Five Forces

WORKSHEET 3 2/3

Ability to
control
THREAT OF NEW ENTRY

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

THREAT OF SUBSTITUTION

14

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

Impact
Level

Risk
Level

Porters Five Forces

WORKSHEET 3 3/3

Ability to
control
SUPPLIER POWER

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

BUYER POWER

15

Entry
Entry
Entry
Entry
Entry

1
2
3
4
5

Impact
Level

Risk
Level