Porter’s Five Forces

Analysis

Dr Robert Harris

File source: www.masslearning.com

 Porter’s Five Forces Analysis

• The aim of five forces analysis is to

identify the key factors in the
industrial environment that influence
the organisations capability to
position itself in order to gain
competitive advantage.
Porter’s Five Forces Analysis
Potential
entrants

Threat of
entrants

Suppliers Competitive Buyers

Bargaining Rivalry Bargaining
power power

Threat of
Substitutes

Substitutes
 Threat of new entrants
Barriers to Entry
• Economies of scale and experience curve
High volume output can result in lower unit costs.

• Capital cost requirements of entry

(e.g. investment in technology plant)
The higher these costs are the fewer are likely to
enter.

• Access to distribution channels

e.g.: Petrol companies and retail petrol sites.

• Product differentiation
Creates brand loyalty – new entrants find hard to
overcome.
Factors influencing the bargaining
power of buyers

• The concentration and size of buyers

• The number and size of operators in the
supplying industry
• Alternative sources of supply
• Where components or materials are a
high percentage of cost to the buyer
leading to “shopping around”
• The cost and risk of switching suppliers
Factors influencing the bargaining
power of suppliers

• The concentration of suppliers

• The availability of substitutes
• The cost and risk of switching to buyers
• The power of supplier brand
 The Threat of Substitute

• Substitutes can either entirely replace an

existing product or introduce new
technology or production methods to
enhance or reduce product costs.

• Threat of product obsolescence

• Ability of customers to switch

The Extent of Competitive Rivalry
• The degree of concentration
The number of competitors and their
relative size
• The rate of industry growth
Slow growth can mean an intensification of
competition
• The degree of differentiation
Low differentiation can result in customers
switching frequently
• High exit barriers
If organisations find it hard to leave an
industry excess capacity will increase the
competitive environment
 Dr Robert Harris

File source: www.masslearning.com