According to Porter, businesses can use the model to

identify how to position itself to take advantage of

opportunities and overcome threats
The model of the Five Competitive Forces was
developed by Michael E. Porter

An important tool for analyzing an organizations

industry structure in strategic processes.

These forces determine the intensity of competition

and hence the profitability and attractiveness of an
industry
 Bargaining Power of Suppliers
The term 'suppliers' comprises all sources for inputs that
are needed in order to provide inputs that are needed in
order to provide goods or service.
Supplier bargaining power is likely to be high when
high when:
Supplier industry is dominated by a few firms

Suppliers’ products have few substitutes

Buyer is not an important customer to supplier

Suppliers’ product is an important input to buyers’ product

Suppliers’ products are differentiated

Suppliers’ products have high switching costs

Supplier poses credible threat of forward integration

 Bargaining Power of Buyers
Determines how much customers can impose pressure on
margins and volume
Customers bargaining power is likely to be high when:
Buyers are concentrated or purchases are large
relative to seller’s sales

Products are undifferentiated

Buyers face few switching costs

Product unimportant to quality

Buyer has full information

 Threat of new events
The threat of new entries will depend on the extent to
which there are barriers to entry .These are:
Scarcity of important resources, e.g. qualified
expert staff
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Government Policy
 Threat of substitutes
A threat from substitutes exists if there are alternative products
with lower prices of better performance parameters for the same
purpose.
The threat of substitutes is determined by following factors
Brand loyalty of customers

Close customer relationships

Current trends

Example:

Electronic security systems in place of security guards

Fax machines in place of overnight mail delivery

 Competitive Rivalry Between Exciting Players
This force describes the intensity of competition between
existing players (companies) in an industry.
Competition between existing players is likely to be high
when
•There are many players of about the same size
•Players have similar strategies
•There is not much differentiation between players
and their products
•Using price competition
•Staging advertising battles
•Increasing consumer warranties or service
•Making new product introductions