THE FIVE COMPETITIVE FORCES

THAT SHAPE STRATEGY

Porters 5 Forces
Model

Threat of Competitiva Rivalry Bargaining power of

suppliers
 Growth rate of the Threat of substitutes Threat of New
industry Bargaining power of Competitors • Differentiation of inputs
 Ratio of cost structure to • Relative price customers • Switching cost of the
the value added advantage of the • Economies of scale suppliers
 Cost of over-capacity substitutes • Buyer's concentration • Proprietary product • Relationship specific
 Degree of output • Relative functional as differences
differences among investments requi red
performance advantage • compared to the • Brand identity Presence of substitute inputs
competitors •
 Impact of brand and its of the substitute industry's • Switching costs for the • Supplier's industry
conversion to sales • Switching costs of the concentration customers concentration
 Switching costs customer Customer's volume vs • Capital intensive nature • Importance of volume to the
 Concentration among the • Customer's propensity industry output of the industry suppliers
leading players (herfindal to substitute • Customer's switching • Access to distribution
index) • Cost relative to the total
• Customer's relation cost channels purchases in the industry
 Information flow and specific investments • Price sensitivity • Absolute cost Impact of supplier's inputs to
complexity
• Degree of product advantages overall cost structure Impact
 Diversity of competing
businesses and exit differences • Government policy for of supplier's inputs to
barriers. • Buyer's profits new entrants offering differentiation
• Decision maker's • Potential retaliation or • Threats of forward
incentives. fallouts. integration
IN • Potential for backward
DU integration
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