PORTER’S FIVE FORCES
How to use
Template
Example
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Porter’s Five Forces
Porter’s Five Forces helps you to understand the strength of your Intensity of competition from existing competitors
competitive position. Here you describe what the existing
Identify the existing competitors of your business. Write down
competition is, where the threats of new entrants or substitute
their names and the size of their businesses. Estimate how heavy
products are, and what the bargaining power of suppliers or
the competition is.
buyers is. With a clear understanding of the five forces you can
take advantage of your strengths and improve weaknesses. - The intensity is high if you have many competitors with a
similar product or service. Your business will likely have little
power in the market. Suppliers and buyers can easily go
Tips for use somewhere else.
You can do Porter’s Five Forces by yourself, but it is more - The intensity is low if there is no one else that offers what you
effective if done by a group of people, for example with offer. You have great power in the market. Buyers and
colleagues. suppliers have nowhere else to go.
Use Porter’s Five Forces to make a large printout and use this in a
brainstorm. Use sticky notes to write things on the template, in Threat of substitutes
this way it is easy to add or change things and keep the Substitute products or services offer an alternative for your
conversation going. offering. Write down those products or services that can be an
Have a look at the example as well, learn about the practical alternative for your customers.
application of this tool through Porter’s Five Forces of Nike. - The threat is high if there are many substitutes. It is easy for
buyers to find a different solution than your offering.
How to use - The threat is low if there is no alternative for your product.
Your business has tremendous power since customers cannot
Porter’s Five Forces show that there are five important forces that find an alternative.
determine the competitive power of your business. Write down
high, moderate or low on Porter’s Five Forces template for each
Threat of new entrants
of the following forces.
New entrants are businesses that want to enter your market.
Your power is affected by the ability of others to enter the
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market. New competitors can easily enter your market when Write down how many buyers there are in your market. Also
there are low entry costs, few economies of scale, no knowledge- describe if you depend on your buyers or if they depend on you.
intensity and little protection of key technologies. Write down - The bargaining power is high if there are a few buyers. Those
the potential new entrants and the entry barriers of your market. buyers have large bargaining power and can easily drive down
- The threat is high if there are no or a few entrance barriers. It the price. Your business depends on these buyers.
will be easy for new businesses to start competing in your - The bargaining power is low if there are many buyers. An
market. individual buyer has little bargaining power and cannot drive
- The threat is low if there are many and durable entrance down the price.
barriers. You can maintain your position on the market and
take advantage of it.
Bargaining power of suppliers
High bargaining power of suppliers will result in a higher price
for resources for your product. The bargaining power of
suppliers is determined by the number of suppliers in the
market. Write down on which suppliers you depend for your
resources and how many other suppliers could offer the same
resources. Also describe if it is easy to switch suppliers.
- The bargaining power is high if there are few or just one
supplier. That supplier has large bargaining power and the
power to determine its price.
- The bargaining power is low if there are many suppliers on the
market. An individual supplier has little bargaining power, and
no influence on the price.
Bargaining power of buyers
High bargaining power of buyers means that it is easy for buyers
to drive down the price of your product. The bargaining power
of buyers is determined by the number of buyers in your market.
© InnoValor, 2018
porter’s five forces name
threat of new entrants bargaining power of buyers
intensity of competition
from existing competitors
bargaining power of suppliers threat of substitutes
Developed by Michael E. Porter in “How Competitive Forces Shape
date Strategy” from 1979.
Example Nike
Nike started as a reseller of shoes from a Japanese brand, but
industry Clothing industry
eventually started making their own sports shoes. Through time
the range of shoes and other sports attire was expanded further.
products & Sports attire and accessories Nike now sells everything from casual wear to sports socks.
services However, they are still best known for their (sports) shoes, for
example the very popular Nike Air Max and Air Jordans.
size of 74,400 employees
business Nike’s Porter’s Five Forces
In the example the competitive position of Nike is investigated.
revenue $24.35 billion Porter's Five Forces indicates that Nike should take into account a
couple of things. The most important ones are rivalry of existing
location Washington competition and threat from similar products that closely
resemble Nike's products. In other parts they experience a better
competitive position. Nike doesn’t have to pay as much attention
to new parties who try to enter into the market. Nike has
financial advantages and in this industry the economies of scale
have a big influence. A newcomer will struggle to quickly attract
many customers and profit from these advantages.
© InnoValor, 2018
porter’s five forces name
Nike
threat of new entrants bargaining power of buyers
LOW MODERATE
Economies of scale Competitive products all compete on
intensity of competition
differentiation
Strong established brand name
from existing competitors Low switching costs
High capital requirements
HIGH
Highly competitive in an oligopoly
Strong brand identity
Strong product differentiation
LOW HIGH
Subcontracts to more than 500 small scale Most of the products are easily
factories interchangeable with other brands
Economies of scale and high volumes Specific sports products experience less
threat
bargaining power of suppliers threat of substitutes
Developed by Michael E. Porter in “How Competitive Forces Shape
date Strategy” from 1979.
