Porter's Five Forces

The most influential model for analyzing industry competition. Five forces determine the attractiveness and profitability of an industry.

Michael E. Porter Competitive Strategy (1980)

What are the Five Forces?

Michael Porter, professor at Harvard Business School, defined five competitive forces in 1980 that shape every industry. Together they determine how profitable a market is — and where the strategic levers lie.

The model helps companies understand why their industry is profitable or margin-poor, and where strategic moves should be focused.

The five forces

  1. Threat of new entrants: High barriers to entry protect incumbents. Low barriers invite new competition.
  2. Bargaining power of suppliers: Few, specialized suppliers can dictate prices and squeeze margins.
  3. Bargaining power of buyers: Informed, price-sensitive customers with many alternatives squeeze margins.
  4. Threat of substitutes: Substitutes from other industries can displace entire markets.
  5. Competitive rivalry: Many equally strong competitors lead to price wars and declining profitability.

Industry analysis

Rate each force for your industry (1 = very weak, 5 = very strong)

How easily can new competitors enter your market?

Weak Strong 3

How strongly can suppliers dictate prices and terms?

Weak Strong 3

How easily can customers push prices down or switch to alternatives?

Weak Strong 3

How likely is it that customers will switch to substitutes?

Weak Strong 3

How intense is the competition among existing players?

Weak Strong 3

Inspiriert von Michael E. Porter — Five Forces

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Trivia

  • Porter published "Competitive Strategy" in 1980 — it became the most-cited book in business scholarship ever.
  • The Five Forces model is taught in the first semester at virtually every business school in the world.
  • Porter himself warns against using the analysis as a mere checklist — the interactions between the forces are what matter.
  • A sixth force ("Complementors") was later added by Brandenburger & Nalebuff, but never really caught on in the mainstream.