Porter’s Five Forces Analysis
What is the Level of Competition?
Threats of New
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Existing
Competitors
Threats of Substitution
Bargaining
Power of
Buyers
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Source: “Competitive Advantage: Creating & Sustaining Superior Performance”, Michael E. Porter, Free Press, 1985.
© PMMS Consulting Group. All rights reserved, 2011 www.pmms-group.com
Porter’s Five Forces Analysis
Guidelines
Forces
Example of Factors
Bargaining Power of Suppliers
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Differentiation of inputs
Switching costs of suppliers and firms in the
industry
Presence of substitute inputs
Supplier concentration
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Importance of volume to supplier
Cost relative to total purchases in the industry
Impact of inputs on cost or differentiation
Threat of forward integration relative to threat of
backward integration by firms in the industry
Bargaining Power of Buyers
Bargaining Leverage
• Buyer concentration vs. firm concentration
• Buyer volume
• Buyer switching costs relative to firm switching
costs
• Buyer information
• Ability to backward integrate
• Substitute products
• Pull-through
Price Sensitivity
• Price / total purchases
• Product differences
• Brand identity
• Impact on quality / performance
• Buyers profits
• Decision makers' incentives
Threats of New Entrants
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Economies of scale
Proprietary product differences
Brand identity
Switching costs
capital requirements
Access to distribution
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Absolute cost advantages
Proprietary learning curve
Access to necessary inputs
Proprietary low-cost product design
Government policy
Expected retaliation
Threats of Substitution
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Relative price performance of substitutes
Switching costs
Buyer propensity to substitute
Rivalry Among Existing
Competitors
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Industry growth
Fixed (or storage) costs/value added
Intermittent over capacity
Product differences
Brand identity
Switching costs
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Concentration and balance
Informational over complexity
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Diversity of competitors
Corporate stakes
Exit barriers
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© PMMS Consulting Group. All rights reserved, 2011 www.pmms-group.com