Porter's Five Forces Template
Estimate your competition and develop a business strategy.
This tool was described by Harvard Business School professor Michael Porter, and since its publication in 1979, it has become one of the most popular and highly regarded business strategy tools. Porter's Five Forces are used to measure the strength of current competition and what markets an organization can consider moving into.
About Porter's Five Forces template
What are the Porter's Five Forces?
Bargaining power of suppliers. An assessment of how easy it is for suppliers to drive prices up.
Bargaining power of buyers. An assessment of how easy it is for buyers to drive prices down.
Rivalry among existing competitors.The main drivers are the number of and capability of competitors in the market.
Threat of substitute products/services. When close substitute products exist in a market, it increases the likelihood of customers switching to alternative products in response to price increases.
Threat of new entrants. Profitable markets attract new entrants, which in turn erodes profitability. Unless incumbents have strong and durable barriers to new entrants, profitability will decline.
Why is Porter's Five Forces analysis important?
It helps organizations understand the factors affecting profitability in a specific industry.
It helps organizations make decisions relating to entering a specific industry, whether to increase capacity in a specific industry, etc.
It lets businesses clearly understand the forces that develop competitive strategies.
How to Use Porter’s 5 Forces
Consider threats of new entry. How easily could others enter your market and threaten your company’s position? Who are your new competitors? How much does it cost to enter your market? What are the barriers to entry? Is your market tightly regulated? What does it take to scale?
Think about the amount of competition your company faces: the number of competitors you have and how their products or services compare to yours. If your market has few competitors, that can seem attractive, but keep in mind it might be short-lived. If your market is highly competitive, that can seem unattractive, but it might push you to improve your products and your pricing.
Consider threats of substitution. What is the likelihood that your customers will replace your product or service with a different one? Are there any viable substitutes on the market? What is the cost of switching to a substitute?
When you map out threats of substitution, analyze how your product has impacted your customers’ lives. As their behavior changes, see if you can adapt your product accordingly. You might be able to offer a new service or a cheaper alternative.
Consider the bargaining power of suppliers. What would happen if your suppliers increased their prices? Is that likely to happen? How easily could you switch to an alternative supplier?
It’s important to keep in mind that your supplier is a business too. They are performing the same strategic calculations that you are. If your supplier offers a niche service, they could charge you more and impact your bottom line.
Consider the bargaining power of buyers. How many buyers do you have? Could your buyers switch suppliers? How many would need to switch suppliers to impact your bottom line? How important is your product or service to your buyers?
Like your supplier, your buyers’ calculations could seriously impact your bottom line too. These questions help you figure out how much leverage your buyers have. Even if your buyers are not businesses, it’s important to treat them that way. They are business-savvy, often shopping around to see how your competitors measure up.
Consider competitive rivalries. Who are your existing competitors? How strong are they? How do their products or services compare to yours? What sets your company apart? What would it cost your customer to switch to a competitor?
Draw out your current competitive landscape. Understand how your competitors are succeeding and why they’re failing. Many businesses make the mistake of only analyzing what makes them better than their competition. It is crucial to understand what makes your competition better than you. Be honest! It’s the only way you can get ahead.
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