Market and competition
Porter's five forces
Also called Five forces analysis
Size up how attractive a market is by looking at rivals, new entrants, substitutes, and the bargaining power of buyers and suppliers.
- Time60 to 90 minutes
- People2 to 8 people
- Steps4
What it's for
How much money a market leaves on the table isn't decided by direct competitors alone. New entrants can undercut prices, substitutes can make the whole category less needed, and powerful buyers or suppliers can take the margin for themselves. Looking at all five forces explains why some markets stay profitable and others never are.
Rate each force weak, medium or strong. A strong force is a threat, and also the place where a good strategy makes the most difference.
How to run it
Name the market5 min
Agree exactly which market and which customers you're looking at. Write it in the middle.
Fill the four outer forces25 min
What makes each force stronger or weaker here: barriers to entry, switching costs, how many buyers and suppliers there are.
Rate each force10 min
Mark each one weak, medium or strong, and say why.
Find the moves15 min
Where could you weaken a force, or position yourself away from it?
Tips
- Be specific about the market. 'Grocery delivery in one city' gives a sharper answer than 'food'.
- Substitutes often come from another category: video calls are a substitute for business travel.
Where it comes from
Michael E. Porter set out the five forces in How Competitive Forces Shape Strategy, in the Harvard Business Review (1979), and in his book Competitive Strategy (1980).
Pairs well with
PESTEL analysis
Scan the world around a business for political, economic, social, technological, environmental and legal changes that could help or hurt it.
SWOT analysis
List strengths and weaknesses inside the organisation and opportunities and threats outside it, to see a situation before planning.
5C analysis
Look at the company, customers, competitors, collaborators and context together before deciding where and how to compete.