Porter's Five Forces
Competitive Analysis Framework
Overview
Porter's Five Forces is a framework developed by Michael E. Porter for analyzing the competitive environment of an industry. It identifies five key forces that determine the competitive intensity and attractiveness of a market.
Key Benefits
- Assesses industry attractiveness and profitability
- Identifies competitive threats and opportunities
- Guides strategic positioning decisions
- Helps understand market dynamics
The Five Forces
Competitive Rivalry
Intensity of competition among existing players
Bargaining Power of Suppliers
The ability of suppliers to influence pricing and terms.
- Number of suppliers
- Uniqueness of service/product
- Switching costs
- Forward integration threat
- Supplier concentration
Bargaining Power of Buyers
The ability of customers to influence pricing and demand better quality.
- Buyer concentration
- Price sensitivity
- Switching costs
- Backward integration threat
- Product differentiation
Threat of New Entrants
The ease with which new competitors can enter the market.
- Barriers to entry
- Capital requirements
- Economies of scale
- Brand loyalty
- Government regulations
Threat of Substitutes
The availability of alternative products or services.
- Substitute performance
- Switching costs
- Price-performance ratio
- Customer propensity to substitute
- Perceived differentiation
Competitive Rivalry
The intensity of competition among existing competitors.
- Number of competitors
- Industry growth rate
- Product differentiation
- Exit barriers
- Fixed costs
Analysis Framework
1. Define Industry Boundaries
Clearly define the industry and market segments you're analyzing.
2. Assess Each Force
Evaluate the strength of each force using relevant factors and data.
3. Rate Force Intensity
Rate each force as High, Medium, or Low based on your assessment.
4. Determine Overall Attractiveness
Combine the ratings to assess overall industry attractiveness.
5. Develop Strategic Response
Create strategies to address the most significant competitive forces.
Strategic Implications
High Competitive Rivalry
Strategy: Differentiation, cost leadership, or niche focus
Strong Supplier Power
Strategy: Vertical integration, supplier diversification, or partnerships
Strong Buyer Power
Strategy: Customer loyalty programs, switching costs, or value-added services
High Threat of New Entrants
Strategy: Build barriers to entry, economies of scale, or brand loyalty
High Threat of Substitutes
Strategy: Innovation, customer education, or superior value proposition
Application in Jefferson.Cloud Methodology
In the Risk Radar phase, Porter's Five Forces complements PESTEL analysis by providing:
- Trotlines: Competitive intelligence gathering on industry dynamics
- Nets: Early warning systems for competitive threats and opportunities
- Lures: Strategic positioning insights for different market depths