Porter’s Five Forces Model

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 Porter’s Five Forces Model

- Five competitive forces determine how much

economic value is created by the industry and
divided among the companies that compose
the industry versus the value that needs to be
bargained away by customers and suppliers,
or constrained by potential new entrants ( or
substitute products).
 Porter’s Five Forces Model

- Therefore the 5F model helps to determine

the industry’s attractiveness ( ex. Potential for
profit)
- The right industry makes a huge difference in a
firm’s chances for success
- Also helps to identify what factors can vary for
the industry’s attractiveness to change as well
https://business-frontiers.org/
 Threat of New Entrants
Barriers to Entry:
- Economies of Scale
- Product Differentiation
- Capital Requirements
- Access to Distribution Channels
- Cost Disadvantage Independent to Scale
- Government Policy
- Expected Retaliation
- Political protectionism
 Bargaining Power of Suppliers
Determinants of the supplier’s power:
- Sales Volume
- Product Differentiation, Commoditization
- Buyer price sensitivity
- Buyer switching cost
- Number of Suppliers
- Substitute products
 Threat of Substitute Products
- A constraint on how much can be charged
- Substitution can come from inside or outside
the industry
- The more substitutions the less attractive an
industry might be
 Bargaining Power of Buyers
Determinants of Buyer’s power:
- Purchase volume
- Product differentiation, commoditization
- Price sensitivity
- Switching cost
- Number of firms to buy from
- Availability of substitute products
Intensity of Rivalry among Competitors
Rivalry among the firms is affected by the
following:

- competitor balance
- industry growth rate
- degree of differentiation
- competitive position