We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Porter's Five Forces Analysis?

By Rolando Braza
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Porter's five forces analysis is an industry analysis model developed by Michael E. Porter as a tool for developing corporate strategies to become or remain competitive in an industry. It helps a company exploit opportunities and overcome threats in the external environment of the business. According to Porter, there are five forces that affect the competitive environment of an industry. The five forces include rivalry among competitors, the threat of new players, bargaining power of consumers, bargaining power of suppliers, and the threat of substitute products.

The rivalry among competitors is considered the strongest among the five competitive forces that affect an industry. In a graphical representation, this force is often placed at the center, with the other four forces feeding into it. Fierce competition normally results in the decline of profitability in an industry.

A new business entrant or player is a threat to existing businesses in an industry, especially when the new player is able to hurdle difficult barriers to entry. A new business may be able to enter the industry with products that have better quality and lower prices. Corporate strategists of existing firms must, therefore, always keep their ears to the ground to detect any new players early and to quickly prepare a counter-offensive.

When there is little product differentiation and the features of the product are standard, buyers will have bargaining power. Consumers will be able to negotiate for discounts more easily and even ask for freebies. Companies, on the other hand, will be pitted more strongly against each other to get the sale and keep the customer from switching to another supplier or store. Marketing must play an aggressive role in coming up with promotional campaigns to establish customer loyalty.

The bargaining power of a supplier is high when there are a limited number of dominant suppliers that can dictate the price for their products and services. Conversely, suppliers will have a weak bargaining power when there are many competent suppliers servicing an industry. In times when suppliers control the market, a company must find a way to establish a good relationship with a supplier and negotiate a long-term supply contract. When the supply market has too many players, a company should exploit the situation by negotiating for an attractive discount and payment plan, as well as working for a just-in-time delivery arrangement.

According to Porter's five forces analysis, substitute products become a competitive pressure to a company when the cost of the substitute product is substantially lower and the customer's switching cost is also low. When it makes economic sense, customers will be encouraged to go for the substitute product. Corporate strategists may resort to product innovation to improve their offerings, and it may also be possible to lower production costs to reduce the price of the product to prevent customers from switching.

A company that employs Porter's five forces analysis may be able to get a good grasp of the competitive environment. Managers may be better able to prepare an effective strategy to achieve profitability and stay ahead of the competition. Porter's five forces analysis can also help in the planning of an optimized allocation of a company's resources. It could likewise paint a good picture of the industry that will allow shareholders to see where the industry is headed.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.