Porter's Five Forces Model

MBA Portfolio - Blog 2

"The Five Forces is a framework for understanding the competitive forces at work in an industry, and which drive the way economic value is divided among industry actors"

First described by Michael Porter in his classic 1979 Harvard Business Review article.

Porter's Five Forces was developed by Michael E Porter of Harvard Business School in 1979.

Below are Porter's five forces:

  1. Threat Of Entry

  2. Bargaining Power Of Buyers

  3. Bargaining Power Of Suppliers

  4. Threat Of Substitute Products

  5. Rivalry Among Existing Firms

This is a simple but very effective tool. It helps to examine companies profitability in competitive environment. Business strategies can be adjusted based on findings of Porter's five forces model to be profitable in competitive market.
 
Below is one sample Porter Five Forces Analysis of StarBucks:

Threat Of Entrant - Moderate

There are many barriers to enter in this industry. Establishing such a huge chain requires huge investment and earning brand loyalty take time.

Bargaining Power Of Supplier - Low

Raw material used by Starbucks comes from many supplier. Switching cost for Starbucks is not so high therefore suppliers are not in position bargain much with Starbucks.

Bargaining Power Of Buyer - High

Competition is higher in market. If Starbucks or any other brand attempts to increase prices, buyer will simply walk away as switching cost is very low to buyer.

Threat Of Substitutes - High

All products produced by Starbucks have substitute. For example Coffee or tea can be made at home or purchased from other brand.

Rivalry Among Existing Firms - High

There are many big existing chain business selling coffee, tea and other beverages. Competitors keeps being competitive to increase their market share.


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