Threat of New Entry Supplier Power Buyer Power Competitive Rivalry Threat of Substitution
What is it? Porters five forces is a tool developed by Michael Porter to analyse the forces that might work against an organisation being successful. It is used to identify potential threats that might arise and to assess the balance of power in an industry. It is useful therefore in strategic decision making, as an aid to consider where best to strengthen position and identifying gaps in market. How do I use it? Under each of the ‘forces’ on the diagram, consider which threaten or affect your organisation. Questions to think about are on the next slide.
Threat of new entrants - How loyal are your customers? Could they be persuaded by a new organisation? What is the likelihood of a new business entering the market? What are the costs involved for them? Are their difficulties to entering the market? What might potentially deter new entrants? Buyer Power - How powerful are buyer groups? Could they combine resources and force prices down? How many alternatives are there for the product or service? How easy is it for customers to switch? Threat of substitution - How many different types of this product or service are there? How important are the substitutes considered to be? How easy is it to develop a substitute to your product or service? Supplier Power – How many suppliers are there? How large are the supplier organisations? How unique is the product or service? What is the cost of changing supplier? Competitive Rivalry - How many competitors are there? What is the difference in quality? What other differences are there? What is the cost of leaving the market? How loyal are customers?