Porter's Five Forces Template
Discover the best market for your product with the Porter's Five Forces Template. This business framework helps you to evaluate the competition and develop better strategies.
About Porter's Five Forces Template
Business analysts and strategists use the Porter’s Five Forces Template to determine how profitable a product or service can be and what markets are the best fit for this particular product. It’s a way to gain market insights and analyze the competitive landscape.
Keep reading to know how to use Porter’s Five Forces Model.
What is the Porter’s Five Forces Template?
The Porter’s Five Forces Template is where you can map Porter’s Five Forces so you can evaluate your company’s competitiveness.
This framework, also known as Porter’s Five Forces Model, breaks down the competition into five forces:
1. Supplier power
This force assesses how easy it is for suppliers to drive prices up. It’s typically completed by determining the number of suppliers who can offer the same supply, the cost of switching suppliers, and any unique aspects of benefits the supplier can offer.
2. Buyer power
Next, you determine how easy it is for buyers to drive prices down. This is determined by the total number of buyers your business has, customer acquisition cost, customer lifetime value, and other factors that may give the buyer (customers) leverage to negotiate for lower prices or go elsewhere.
3. Rivalry among existing competitors
The main drivers of this force are the number of and capability of competitors in the market. More numerous and powerful competitors with a larger market share diminish the power of any smaller company and give both customers and suppliers more leverage (because of their ability to go elsewhere).
4. The 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.
5. The threat of new entrants
Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to new entrants, profitability will decline. Conversely, the more unique your product is from other competitors, the less threat new entrants pose.
Why is Porter's Five Forces analysis important?
Porter’s Five Forces forces model is helpful when analyzing a business because:
It determines the factors affecting profitability. Completing the Porter’s Five Forces Template helps understand the specific factors hindering growth or profitability and find new competitive advantages.
You can make better decisions on expansion or capacity. If you’re considering expanding your business somehow, you’ll want to understand the competitive forces at play and how they may affect you. A Five Forces analysis provides organizations with the information to make good decisions about entering a specific industry or increasing their market share.
It informs your overall strategy. When you understand what shapes the overall market and what determines profitability, you can craft a strategy that plays to the strengths of your industry and accounts for the weaknesses.
How to Use Porter’s 5 Forces Template
The Porter’s Five Forces Template makes it easy to run an analysis of your business.
Select the template and fill the five fields with sticky notes. You can color-code them to make it easy to identify topics at a glance.
When analyzing each force, think about the questions below:
Force 1: Threats of New Entrants
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 pricing.
Questions to ask:
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?
Force 2: Threat of Substitute Product/Services
When you map out substitution threats, 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.
Questions to ask:
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 replacement?
Force 3: Bargaining Power of Suppliers
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.
Questions to ask:
What would happen if your suppliers increased their prices? Is that likely to happen? How easily could you switch to an alternative supplier?
Force 4: Bargaining Power of Buyers
Your buyers’ calculations could also seriously impact your bottom line, like your supplier. 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.
Questions to ask:
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?
Force 5: Rivalry Among Existing Competitors
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.
Questions to ask:
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?
When completing your Porter’s Five Forces template, you can invite your team to work in real time with you or ask for their feedback by sharing the board link.
What is the main objective of Porter's Five Forces Model?
Porter’s Five Forces is a framework that helps you analyze competition and make better-informed decisions on penetrating or launching a product into the market. It gives you insights into how profitable your product can be by analyzing the competitive landscape, looking at the direct competition, evaluating consumers’ buying power, and checking suppliers’ bargaining possibilities.
When should you use Porter's Five Forces framework?
You should use Porter’s five forces framework when building a marketing and business strategy, so you don’t miss any information that might influence your business success.