Porter’s Five Forces

Use these to assess the potential for profitability in and industry as well as assess the balance of power in general terms.



  1. Buyer Power
    • The power of customers to drive down prices
  2. Supplier power
    • Supply industry is dominated by a few companies
    • Supplier has a raw material or product that is unique
    • no substitutes for supplies
    • supplier is a potential threat to integrate the service
    • our industry is not important to suppliers
      • Your business is too small to matter to them
  3. Competitive rivalry
    • Many competitors with equal shares
    • Slow industry growth
    • Product is not easily differentiated
      • commodities
    • Excess capacity
    • Exit barriers are high
    • Intense rivalries.
  4. The threat of substitution.
    • You’ll eventually find yourself with a cap on potential profits
    • (Elastic vs inelastic demand curve)
    • Buyer is at the tail end – essentially this is the power to drive down prices.
  5. Threat of New Entry
    • Time & cost of entry
      • franchise fees, licenses
    • Product differentiation
    • Capital requirements
      • Expensive new equipment.
    • Learning curve advantage
    • Access to distribution channels
    • Barriers to entry
      • Legal (Ex. No more net neutrality)

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