what are porter s five forces 
michael porter s five force strategic analysis model introduced in a 1979 article published in the harvard business review remains a fundamental tool for strategic analysts plotting the competitive landscape of an industry 1in a bid to mirror the complexity real strategists would face while keeping their strategic analysis manageable porter set out five forces at play in a given industry internal competition the potential for new entrants the negotiating power of suppliers the negotiating power of customers and the ability of customers to find substitutes below we take you through each of porter s five forces detail the significant critiques of his approach and show how to apply the model to specific markets investopedia xiaojie liuunderstanding porter s five forcesstrategic analysis at the time of porter s article tended not only to love acronyms swot pest pestel bcg matrix etps etc but also models focused on the internal dynamics of individual companies 2while it would be unfair to suggest they ignored the competitive environment companies face they were typically vague while doing so e g the opportunities and threats of swot analysis were too macro for many dealing with the challenges of specific industries porter s 1979 article was also a broadside against the theoretical models found in the curriculums of the major business schools where future strategists dealt with a perfectly competitive market characterized by equilibrium and no specific firm influencing prices a model they were unlikely to find in the real world the first sentence of porter s 1979 article could hardly be less controversial the essence of strategy formulation is coping with competition 1it s the following sentence that in its understated way would prove far more consequential yet it is easy to view competition too narrowly and too pessimistically 1rather than viewing competition narrowly as rivalry among existing competitors which is his first force porter expanded the concept to include four others the bargaining power of suppliers and buyers the threat of new entrants and the threat of substitute products or services let s take these in turn subscribe to term of the day and learn a new financial term every day stay informed and make smart financial decisions sign up now porter s five forcesporter s first force is what we usually mean when discussing business competition we think of pepsi and coca cola for soft drinks apple and samsung for smartphones nike and adidas for sneakers and ford and general motors for autos indeed some of these rivalries are so influential that consumers split almost culturally among those who have an iphone drive a ford or prefer netflix to hulu thus it s no accident that we also consider business competition chiefly a war among rivals such rivalries can lead to price wars high priced marketing battles and races for slight advances that could mean a competitive advantage these tactics can stimulate companies to make ever better products but also erode profits and market stability 3several factors contribute to the intensity of competitive rivalry in an industry industries where new firms can enter more easily almost always have lower profit margins and the firms involved each have less market share 1the sector for local restaurants has relatively low entry requirements there aren t significant investments or regulatory hurdles to surmount before opening to the public thus it s also the case that your favorite restaurant may not stay open for long given the hypercompetitive environment and constant entrance of new restaurants opening here are factors in measuring how much new entrants threaten an industry suppliers are powerful when they are the only source of something important that a firm needs can differentiate their product or have strong brands 1