What’s New
The Porter’s Five Forces Framework is a strategic tool for analyzing the competitive dynamics in a market. Each force affect a company’s ability to make a profit.
Five new Market Simulation Case Study workflows have been developed to analyze each force that impacts a company’s ability to make a profit:
- Threat of New Entrants: Profitable industries that yield high returns will attract new market entrants – decreasing the profitability of the incumbents. If there is no cost to entry then many new entrants will lead to perfect competition and zero profitability. Barriers to entry, including large capital requirements and economies of scale, discourage new competitors.
- Threat of Substitutes: Substitute products use different means and technologies to try to solve the same economic need – such as meat vs fish. Substitute products tend to compete through their Horizontal Differentiation. To limit the Threat of Substitutes, companies can increase their Horizontal Differentiation by offering better value through new features or wider product accessibility.
- Bargaining Power of Buyers: The Bargaining Power of Buyers reflects their ability to put pressure on the sellers by either driving down the price or by driving up the cost-to-serve. Power increases when buyers are price sensitive and have low switching costs. These same factors tend to also reduce the buyer’s own Product Differentiation, driving consolidation within the buyer’s own industry.
- Bargaining Power of Suppliers: Suppliers have bargaining power when there are few substitutes or when a supplier offers features and benefits that differentiated it from other competitors. A supplier may also have bargaining power when it can uniquely help the buyer lower costs or increase product differentiation to the end consumer.
- Competitive Rivalry: The rivalry between existing competitors can include: (a) price discounts, (b) promotional campaigns, (c) distribution battles for access to customer, and (d) new product development. This Market Simulation demonstrates how dynamic Price Competition causes markets to act as Chaotic Systems.
Michael Porter first published his “Five Forces” in a Harvard Business Review (HBR) article in 1979. In 2008 he published an updated article in HBR entitled The Five Competitive Forces That Shape Strategy. It is from this 2008 article that many of these case study examples come from.
See Also
CS-162 Porters Five Forces – Part 02 Threat of Substitutes
Substitute products use different means and technologies to try to solve the same economic need - such as meat vs fish. Substitute products tend to compete through their Horizontal Differentiation. To limit the Threat of Substitutes, companies can increase their Horizontal Differentiation by offering better value through new features or wider product accessibility.
CS-163 Porters Five Forces – Part 03 Bargaining Power of Buyers
The Bargaining Power of Buyers reflects their ability to put pressure on the sellers by either driving down the price or by driving up the cost-to-serve. Power increases when buyers are price sensitive and have low switching costs. These same factors tend to also reduce the buyer's own Product Differentiation, driving consolidation within the buyer's own industry.
CS-164 Porters Five Forces – Part 04 Bargaining Power of Suppliers
Suppliers have bargaining power when there are few substitutes or when a supplier offers features and benefits that differentiated it from other competitors. A supplier may also have bargaining power when it can uniquely help the buyer lower costs or increase product differentiation to the end consumer.
CS-165 Porters Five Forces – Part 05 Competitive Rivalry
The rivalry between existing competitors can include: (a) price discounts, (b) promotional campaigns, (c) distribution battles for access to customer, and (d) new product development. This Market Simulation demonstrates how dynamic Price Competition causes markets to act as Chaotic Systems.
