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For the purposes of this page we will focus on the PESTLE variation of
the acronym.
Porter has identified five basic forces that collectively describe the state of
competition in an industry:
These forces assist in identifying the presence or absence of potential high returns.
The weaker are Porter's five forces, the greater is the opportunity for firms in an
industry to experience superior profitability. More generally, understanding how these
forces affect competition within an industry allows the strategist to identify the most
advantageous strategic position.
The actors within an industry on whom these forces exert pressure are, respectively,
the industry's competing firms themselves, potential new entrants to the industry's
markets, suppliers (vendors), customers, and makers of substitute products.
Obviously, the starting point for conducting an analysis of the five forces of
competition is to identify all the competitors, potential new entrants, major suppliers,
the demographics of customers, and makers of and nature of substitute products.
Competitors would not only have to be identified, but various distinguishing data
about the industry would also have to be specified. For each competitor this data
would include market share, product line differences/similarities, market segments
served, price/quality relationships represented by products, growth/decline trends,
financial strength differences, and any other information that will help describe the
industry.
Arranging the five forces and the major actors within an industry produces the "five
forces model" as follows:
.
Potential
Entrants
Competitive
Suppliers Buyers
Rivalry
Substitutes