What’s Porter’s Five Forces?

The Porter Five Forces model is a tool used by businesses to understand the competitive forces in their industry, and to determine the attractiveness of the market. The model is based on the idea that the attractiveness of an industry is determined by five forces: the threat of new entrants, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the intensity of competitive rivalry.

1. Threat of new entrants: This refers to the ease with which new companies can enter the market and compete with existing firms. A market with high barriers to entry, such as a high cost of entry or strong regulatory hurdles, is less attractive to new entrants.
2. Threat of substitutes: This refers to the availability of alternative products or services that customers can choose instead of the products or services offered by the company. A market with many substitutes is less attractive, as it is more difficult for companies to differentiate their products and command a premium price.
3. Bargaining power of buyers: This refers to the ability of customers to negotiate lower prices or better terms from the company. A market with many buyers, or buyers who are not very price sensitive, is less attractive, as it is more difficult for companies to maintain profit margins.
4. Bargaining power of suppliers: This refers to the ability of suppliers to negotiate higher prices or worse terms from the company. A market with few suppliers, or suppliers who are not very price sensitive, is less attractive, as it is more difficult for companies to maintain profit margins.
5. Intensity of competitive rivalry: This refers to the level of competition in the market, and the degree to which companies are competing with each other for market share and customer loyalty. A market with high levels of competition is less attractive, as it is more difficult for companies to differentiate their products and maintain their market position.