Questions to Consider for Porter's 5 Forces

Is there room for all companies?

The following questions can help you think through and understand Porter's 5 Forces.

Potential Entrants:

• Does the market require you to have particular knowledge to be successful? If yes it hinders others from entering.
• How easy is it to set up in business in the market? Does it take a few hundred dollars or a few million dollars?
• Is branding important in the market? If yes, then brand building may be a problem for new entrants.

Potential Substitutes:

• How easy is it for customers to switch to another type of product or service (to change from using a private car to a public train service, for example)?

Power of Suppliers:

• Where is the balance of power between suppliers and the firms in the market? To much supplier power makes the market unattractive.
• How easy is it to switch suppliers that offer an equivalent or superior product or service? (The easier, the better.)

Power of Buyers:

• Where is the balance of power between buyers and the firms in the market? Too much buyer power makes the market unattractive.
• How many rivals do you have to supply your product or service? How easy would it be for your customer to drop you and use another?

Competitive rivalry:

• Is there room for all companies? If there is, particularly if the market is growing, then this increases the attractiveness.
• Is the market contracting? If so, rivalry may be intense.

ACTION POINT: Asses your market opportunity by considering the questions above and the 5 forces.