Porter’s Five Forces
Term of the Day - 29 January 2024
Today’s Term is “Porter’s Five Forces”.
Porter's Five Forces is a strategic framework developed by Michael Porter to analyse the competitive forces that shape an industry and influence the profitability of firms within that industry. The model identifies five (5) key forces that collectively determine the intensity of competition:
Threat of New Entrants: Examines how easy or difficult it is for new companies to enter the industry. High entry barriers, such as high startup costs or strong brand loyalty, can limit the threat of new entrants.
Bargaining Power of Buyers: Focuses on the power of customers to influence pricing and terms. If buyers have substantial power, they can demand lower prices or higher quality, impacting a company's profitability.
Bargaining Power of Suppliers: Analyses the influence suppliers have over firms in the industry. Powerful suppliers can demand higher prices for inputs, affecting the cost structure of companies.
Threat of Substitute Products or Services: Assesses the availability of alternative products or services that could meet similar needs. The higher the threat of substitutes, the more challenging it is for companies to maintain profitability.
Intensity of Competitive Rivalry: Examines the degree of competition among existing firms in the industry. High rivalry often leads to price wars and reduced profitability.
By understanding these forces, companies can develop strategic responses to navigate the competitive landscape and enhance their long-term competitiveness.