Porter 5 forces analysis
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Porter's 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979 . It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace.
Strategy consultants use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. The framework is textbook material for modern business studies and therefore widely known.
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, bargaining power of customers.
Each of these forces has several determinants:
A graphical representation of Porters Five ForcesThe threat of substitute products
The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand).
buyer propensity to substitute
relative price performance of substitutes
buyer switching costs
perceived level of product differentiation
The threat of the entry of new competitors
Pro ...