7 Porter’s Five Forces

The Porter’s Five Forces Analysis is an externally focused analysis on the market you compete in.

Different from the PEST, this analysis looks at threats of new companies entering your marketplace, the power of suppliers and buyers, the threat of buyers substituting products or services, the need or problem your company solves, and the level of competitive rivalry. Keep in mind that threats of new entries and substitutions could be new technologies or the impact of new behaviors or emerging new target audiences.

Here are detailed definitions for each of the analysis components:

1. 1. The power of suppliers:  They provide the raw materials to create your product or service. Do they overly control your supply chain or pricing? Identify their level of power as strong, medium, or weak.
   2. The power of the buyers of your product: Do buyers have many choices or just one choice? Must they have your product, or is it just nice to have? Again, does the buyer have a strong, medium, or weak influence over sales?
   3. The threats of substitution: Can the marketing problem be solved by using a product that is very dissimilar to yours but solves the problem the customer is facing? This has nothing to do with direct competitors. Is this threat strong, medium, or weak?
   4. Competitive rivalry: Are there many companies offering products very similar to your own? Note that this is different from a threat of substitution. Evaluate the rivalry as strong, medium, or weak.
   5. The threat of new entries: Can companies with similar capabilities offer a competitive product to your own? Generally, these are companies that compete in the exact same marketplace but with slightly different offerings that can be adapted to meet your product head-on. Again, is this threat strong, medium, or weak?

Listen to this YouTube video first to understand how you can use this analysis. Then review this file Porter’s Five Forces – Strategy Tools from MindTools.com for more details.

Then fill out this form for your own Five Forces Analysis: PortersFiveForcesWorksheet