Michael Porter’s Five Forces Framework is a strategic tool used to analyze the competitive environment of an industry. It helps businesses understand the factors that influence profitability and develop strategies to achieve competitive advantage. The five forces are:
- Threat of New Entrants: Assesses how easily new competitors can enter the industry and erode existing players’ market share. High barriers to entry (e.g., high capital requirements, strong brand loyalty) reduce this threat.
- Bargaining Power of Suppliers: Evaluates suppliers’ ability to influence prices or terms. If suppliers are few or provide unique resources, they wield greater power.
- Bargaining Power of Buyers: Measures customers’ ability to demand lower prices or better quality. Buyers with many choices or low switching costs have more power.
- Threat of Substitutes: Analyzes the risk posed by alternative products or services that meet the same need, potentially reducing demand for the industry’s offerings.
- Industry Rivalry: Examines the intensity of competition among existing players. Factors such as the number of competitors, market growth rate, and product differentiation affect this force.