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Porter’s 5 Forces Model

March 18, 2021

Porter’s 5 Forces Model

Michael Porter, in his seminal book “Competitive Advantage”, lists a series of 78 questions that allow you to assess the following 5 competitive forces in a factual manner:

- Threat of new entrants
- Supplier bargaining power
- Clients’ bargaining power
- Threat of substitutes
- Rivalry

To help you in your understanding of this essential tool of competition analysis, we propose you to go through the online course we have dedicated to it.


March 18, 2021

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  1. • Econometric analysis • The different dimensions of the economic

    sector allow the analysis of its strategic importance • Each sector is under pressure from both suppliers and customers PORTER’S Five Forces Framework 2 Crédits photos : Shutterstock
  2. • Variable pressures that exacerbate intra-sectoral competitive struggle • My

    favourite ☺ because it is easily applicable to SMEs in the context of market research PORTER’S Five Forces Framework 2 Crédits photos : Shutterstock
  3. • Indicator of the intensity of the internal competitive struggle

    in the sector analysed. • Sub -dimensions : - Relative concentration: concentration ↑ = bargaining power ↑ = the ability to exert pressure on the other. Bargaining power of suppliers 2
  4. • Related quality: the value of the final product is

    strongly determined by the quality of what is purchased from the supplier (example: passenger aircraft and engines RR, Snecma). • Product differentiation: it makes it very difficult to substitute one product for another and gives the supplier power over his customer. Bargaining power of suppliers 2
  5. • Cost of transfer • Integration possibilities: those downstream with

    an acceptable cost give the supplier significant bargaining power concerning his partner. • Distribution of the added value: precise knowledge of the partner's costs and earnings pressures from the one with the highest added value (example: suppliers to the supermarket sector) • The protection of public authorities Bargaining power of suppliers 2
  6. • Relative concentration • Related quality: important if the value

    of the final product is not determined by the quality of what is purchased from the supplier • Banalisation of products: easy substitution Bargaining power of customers 2
  7. • Transfer cost: low transfer cost = higher power •

    Integration possibilities: negotiating power with its partner but barriers to entry Example: Casino (distributor → innovator), Swatch (vertical integration) • Distribution of added value • Protection by the public authorities towards the customer Bargaining power of customers 2
  8. Assessment factors • Number and size of competitors that give

    a first indication of the nature of the competitive structure • Growth in the activity that weighs on the market (low growth accentuates tensions) • The importance of fixed or storage costs leads to a negative impact on the profitability of smaller companies a rivalry between existing competitors 2
  9. • Product neutrality or low transfer costs that exacerbate intra-sectoral

    control • The diversity of competitors makes it difficult to perceive the most dangerous competitors • Importance of strategic issues • The existence of high obstructions at the exit a rivalry between existing competitors 2
  10. • A company is likely to become a new entrant

    if it has an interest in: - Integration - A growing market - Profitability • Two assessment factors: - Barriers to entry (economies of scale and scope, product differentiation, need for capital - Fear of retaliation Threat of new entrants 2
  11. • Depends on technological developments (DVD, MP3, floppy disk) •

    To anticipate the threat : - Be familiar with the functional use - Monitor emerging technologies Threat of substitutes 2
  12. • The regulation of competition and the limitation of violations

    • The amplifying role of other forces The role of public authorities (the 6th force) 2