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Porter's Five Forces Model

Michael Porter developed the Five Forces model to analyze industry competition and profitability. The five competitive forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and the intensity of rivalry among existing competitors. Porter argued that an industry's profit potential is largely determined by the collective strength of these five competitive forces.

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172 views13 pages

Porter's Five Forces Model

Michael Porter developed the Five Forces model to analyze industry competition and profitability. The five competitive forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and the intensity of rivalry among existing competitors. Porter argued that an industry's profit potential is largely determined by the collective strength of these five competitive forces.

Uploaded by

adityaksingh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Michael Porter’s

Five Forces
Model
Michael Porter …

“An industry’s profit potential


is largely determined by the
intensity of competitive
rivalry within that industry.”
Porter’s Five Forces
Portfolio Analysis …
… Strategy at the time (1970s)
was focused on two dimensions
of the portfolio grids …
… Industry Attractiveness
… Competitive Position
Where was
Michael Porter
coming from?
School of Economics …
… at Harvard …
… Exposed Porter to the
Industrial Organization (I0)
sub-field of Economics.
Porters Five Forces …
* Threat of Entry
* Bargaining Power of Suppliers
* Bargaining Power of Buyers
* Development of Substitute
Products or Services
* Rivalry among Competitors
Barriers to Entry …
… large capital requirements or the need
to gain economies of scale quickly.
… strong customer loyalty or strong
brand preferences.
… lack of adequate distribution channels or
access to raw materials.
materials
Power of Suppliers …
… high when
* A small number of dominant, highly
concentrated suppliers exists.
* Few good substitute raw materials or
suppliers are available.
* The cost of switching raw materials or
suppliers is high.
Power of Buyers …
… high when
* Customers are concentrated,
concentrated large or buy in
volume .
* The products being purchased are
standard or undifferentiated making it easy to
switch to other suppliers.
* Customers’ purchases represent a major
portion of the sellers’ total revenue.
Substitute products …
… competitive strength high when
* The relative price of substitute products
declines .
* Consumers’ switching costs decline.
decline
Rivalry among competitors
… intensity increases as
* The number of competitors increases or
they become equal in size.
size
* Demand for the industry’s products
declines or industry growth slows.
slows
* Fixed costs or barriers to leaving the
industry are high.
high
Summary …
As rivalry among competing
firms intensifies,
intensifies industry profits
decline,
decline in some cases to the
point where an industry becomes
inherently unattractive.
unattractive

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