Elements Porter’s Five Forces:

Threat of new entrants: Economies of scale, Product differentiation, Capital requirements, Switching cost, Access to distribution channel, Cost advantage independent of scale.

Bargaining power of suppliers: Concentration, Substitutability, Vertical integration, Strategic importance, Switching cost

Bargaining power of buyers: Concentration and size, Strategic importance, Product standardization, Switching cost, Vertical integration

Threat of product substitutes: Direct and indirect substitution, lifecycle


Forces determining the profitability of an industry



Market dynamics:

  • current market volume, how is demand likely to change?
  • areas og strongest growth?
  • segments with high profit potential?
  • predominant market trends, are these likely to change?

Market characteristics:


  • principle products purchased?
  • what is their end use?
  • principle products purchased (size, weight, packaging etc.) and specifications?


  • price levels and range?
  • discounts used, aimed to trading (stock building) or end users?
  • terms and conditions of sale, normal practices and regulations?


  • principle method of physical distribution?
  • trade channels, new trade opportunities?
  • decision makers?


  • principle methods of communication, sales force, PR, advierticing?

Industry practices

  • relevant industry trade associations or government bodies?


Direct competitors

  • who are the direct, what strengths and weaknesses?
  • their standing in the marketplace?
  • their historical sales performance, extent of diversification?
  • their available resources, where are they likely to focus in future?

Industry structure:

  • the concentrations of power in the supply chain?
  • the history of new entrants or substitutes, are they likely contenders in future?
  • level of internationalisation of competitors, buyers and suppliers?

Industry profitability

  • the financial / non financial barriers to entry?
  • levels of industry profitability and relative performance of individual firms?


  • significant customer segements, level of demand and how likely to change?
  • the needs and wants of each customer segment?
  • motivations for making a purchase?
  • how loyal are customers?
  • customer level of awareness and their perseption of each industry player?

Concentrate strategic attention on most important force – position to defend rivals – influence forces trough strategies – anticipate changes – generate success in long-term
Government influence – identifying rapid change – weight of forces – cooperation/partnership links


To identify the key competitive forces affecting a business

For predicting future industry structure and develop future competitive strategies

Enable easy comparison between industries/segments

Source of Porter’s Five Forces:

Porter (1998)