Using Porter's 5 Forces

Consider each of the five forces in turn.

The model looks at five forces that define the market: how easy it is for new businesses to enter; how easy it is for customers to substitute your product or service for another; how much power suppliers and buyers in the market have; and the overall degree of competitive rivalry within the market.

Consider each of the five forces in turn. Start by assessing how difficult it is for you to enter the market. One aspect of competition is that if you are seen to be successful in a market, then others will quickly follow. It is more attractive, therefore, for a market to be easy for you to enter, but to have high barriers to entry for others. Next consider the second force: how easy it is for your customers to substitute your product or service with another.

The power of buyers and suppliers are two sides of the same coin If all the companies within the market need to buy a certain raw material, and there is only one supplier, this supplier has power over supply and pricing. Similarly, if one retailer controls the distribution and sale of a product, then that retailer (the buyer) has control. A market in which you have less control and power is not as attractive to enter as one in which you are not constrained in this way.

The first four factors combine to make an overall competitive rivalry, so the final step of the analysis is to consider how strong this is for your particular market. The output of the p5F analysis can be used in SWOT analysis, to link this information about the strengths and weaknesses of your organization.

ACTION POINT: Assess the competitive rivalry of your market by considering the potential entrants, substitutes and the power of buyers and suppliers.