What is Porters Five Forces Analysis of the Environment?
Michael Porter gave the famous Five Forces Model to analyse the competitive environment of any product or company. It is one of the most used marketing tools. As per the model five forces act on the product/brand/company at all times. They are as follows:
- Bargaining power of Suppliers: Suppliers can have considerable power over the firm if there is a dearth of substitutes.
- Threat of New entrants: Profitable industries are always an attraction to new entrants. The latter poses an obvious threat to the existing firm as it may lose its market share, customers will have a near substitute etc.
- Threat of Substitutes: Substitute products often use different technologies but satisfy the same need. E.g. soft drinks and mineral water etc.
- Bargaining power of Buyers: This is generally high when there are many alternatives available in the market. It usually puts the firm under pressure and also has to affect on customer’s sensitivity to price changes.
- Industrial Rivalry: This is the most critical determinant of the competitiveness of an industry.