Porter’s Five Forces

Evaluating Industry Attractiveness

7/2/20251 min read

Porter’s Five Forces is a powerful tool for analyzing an industry’s structure and potential profitability. It assesses competitive intensity and hence attractiveness of a market.

  1. Threat of New Entrants: How easy is it for new players to enter the industry? Consider barriers like economies of scale, regulation, and capital requirements.

  2. Bargaining Power of Suppliers: Do suppliers have leverage to dictate terms? Fewer suppliers or high switching costs increase this force.

  3. Bargaining Power of Buyers: If customers have many options and low switching costs, their power increases.

  4. Threat of Substitutes: Availability of alternatives can reduce industry profitability.

  5. Industry Rivalry: The number and strength of competitors, along with product differentiation, impact this force.

This model is widely used for market research, competitive strategy, and M&A decisions.