The five forces are:
1. Threat of New Entrants
➡️ How easy or difficult is it for new competitors to enter the market?
Key factors:
- Barriers to entry (e.g., high startup costs, regulations)
- Brand loyalty and customer switching costs
- Economies of scale (cost advantages for established businesses)
- Access to distribution channels
👉 High threat = Increased competition and pressure on prices and profitability
👉 Low threat = Established players are more secure
2. Bargaining Power of Suppliers
➡️ How much influence do suppliers have on the business?
Key factors:
- Number of suppliers (fewer suppliers = higher power)
- Uniqueness of supplier's product or service
- Switching costs (cost of changing suppliers)
- Threat of forward integration (suppliers starting to compete directly)
👉 High power = Suppliers can demand higher prices or better terms
👉 Low power = Businesses can negotiate better prices and terms
3. Bargaining Power of Buyers
➡️ How much influence do customers have on pricing and terms?
Key factors:
- Number of buyers (fewer buyers = higher power)
- Price sensitivity of buyers
- Availability of alternative products
- Threat of backward integration (buyers producing their own products)
👉 High power = Buyers can demand lower prices and better quality
👉 Low power = Businesses have more control over pricing
4. Threat of Substitutes
➡️ How easily can customers switch to a different product or service?
Key factors:
- Availability of alternative products
- Performance and price of substitutes
- Switching costs for customers
👉 High threat = Increased competition and price pressure
👉 Low threat = More customer loyalty and stability
5. Industry Rivalry
➡️ How intense is the competition within the industry?
Key factors:
- Number of competitors
- Industry growth rate
- Product differentiation
- Exit barriers (how easy it is for companies to leave the market)
👉 High rivalry = Pressure on prices and profitability
👉 Low rivalry = More room for profit and market share growth
✅ Why It Matters
Porter’s Five Forces helps businesses:
- Identify opportunities and threats in the market
- Develop strategies to improve competitive position
- Understand market dynamics and adjust business models accordingly