Porter’s Five Forces is a framework developed by Michael Porter to analyze the competitive environment of an industry. The model is based on the idea that the strength of competition within an industry. The determinations of the five key forces are the threat of new entrants. In addition, they are the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the intensity of competitive rivalry.
The threat of new entrants in Porter’s Five Forces refers to the possibility of new competitors entering the industry.
It increases competitors. Factors that can increase the threat of new entrants include low barriers to entry, a large potential market, and low switching costs for customers.
The bargaining power of suppliers refers to the ability of suppliers to influence the prices of the inputs that companies need to operate. Suppliers can have more bargaining power if they are a few in number, offer unique inputs, or have significant control over distribution channels.
The bargaining power of buyers refers to the ability of customers to influence the prices and quality of products or services. Buyers can have more bargaining power if they are a few in number, purchase in large quantities, or have low switching costs.
The threat of substitute products or services refers to the possibility of alternative products or services reducing the demand for existing products or services. The threat of substitutes is higher when there are many close substitutes available, and when the cost of switching to a substitute is low.
The intensity of competitive rivalry refers to the level of competition among existing companies in the industry. Factors that can increase competitive rivalry include a large number of competitors, low barriers to exit, and slow industry growth.
Overall, the Porter’s Five Forces framework provides a useful tool for analyzing the competitive environment of an industry. It identifies the key factors that can influence the success of companies operating within that industry.