How to use porter s five forces model

Topics: Strategic management, Marketing, Management Pages: 11 (2227 words) Published: July 22, 2015
7/22/2015

How to use porter's five forces model



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How to use Porter’s five Forces
NOVEMBER 18, 2013

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By Annmarie Hanlon
(http://www.smartinsights.com/author/annmarie-hanlon/)

What is Porter’s five Forces model?
This model helps marketers and business managers to look at the ‘balance of power’ in a market between different types of organisations, and to analyse the attractiveness and potential profitability of an industry sector.

It’s a strategic tool designed to give a global overview, rather than a detailed business analysis technique. It helps review the strengths of a market position, based on five key forces. Porter’s Five Forces works best when looking at an entire market sector, rather than your own business

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How to use porter's five forces model

Porter’s Five Forces works best when looking at an entire market sector, rather than your own business and a few competitors.

(http://www.smartinsights.com/wp-content/uploads/2013/11/Porter’s-Five-Forces-model.png)

How can I use Porters five Forces?
To apply Porter’s Five Forces, you need to work through these questions for each area: Force 1: Threat of New Entry?
Force 2: Buyer Power?
Force 3: Threat of Substitution?
Force 4: Supplier Power?
Force 5: Competitive Rivalry?

Threat of New Entry
If a new businesses can be easily started up in your sector without substantial investment - then this is a threat. The Internet has made this a reality in many sectors, especially publishing! So ask yourself the questions: What’s the threat of new businesses starting in this sector? How easy is it to start up in this business?

What are the rules and regulations?
What finance would be needed to start-up?

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What finance would be needed to start-up?
Are there barriers to entry which give you greater power?

Buyer Power
Where there are fewer buyers, they often control the market. Questions here include: How powerful are the buyers?
How many are there?
Can the buyers get costs down?
Do they have the power to dictate terms?

Threat of Substitution
If there are available alternatives then the threat of substitution increases. How easy is it to find an alternative to this product or service? Can it be outsourced? Or automated?

Supplier Power
Markets where there are few suppliers means the suppliers retain the power Examine how many suppliers are in the market?
Are there a few who control prices?
Or many so prices are lower?
Do your suppliers hold the power?
How easy is it to switch, what’s the cost?

Competitive Rivalry
Markets where there are few competitors are attractive but can be short-lived. These are highly competitive markets with many companies chasing the same work reduce your power in the market. What’s the level of competition in this sector?

What’s the competitor situation? Many competitors and you’re all in a commodity situation or a few?

Examples of how Porter's five Forces can be applied to a business? If your business is thinking about...
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