Porter’s Five Forces Model

Porter’s Model

Porter’s Competitive Model, also known as Porter’s Five Forces, is a framework developed by Michael Porter in 1979 to analyze the competitive forces that affect a company’s profitability and attractiveness within an industry.

The five forces that Porter identified are:

1. Threat of new entrants: The possibility of new companies entering the industry and increasing competition.
2. Bargaining power of suppliers: The degree of control that suppliers have over the price and quality of inputs.
3. Bargaining power of buyers: The degree of control that buyers have over the price and quality of products or services.
4. Threat of substitute products or services: The possibility of customers switching to similar products or services from competitors.
5. Rivalry among existing competitors: The intensity of competition between existing companies in the industry.

The model suggests that companies can analyze and adapt to these five competitive forces in order to improve their position within their industry. By understanding and responding to these forces, companies can create a competitive advantage, such as through differentiation, cost leadership, or focusing on a specific niche within the industry.

Overall, Porter’s Competitive Model remains a widely used and influential tool for analyzing industry competitiveness and developing business strategy.

Let me explain Porter’s Competitive Model with an example.

Let’s say you are starting a new business in the restaurant industry. Here’s how you could analyze the industry using Porter’s Five Forces:

1. Threat of new entrants: The restaurant industry has a relatively low barrier to entry, as it is relatively easy to start a new restaurant. However, there is also a high failure rate for new restaurants, and established restaurants may have advantages in terms of brand recognition, customer loyalty, and economies of scale.
2. Bargaining power of suppliers: Restaurants depend on suppliers for ingredients, equipment, and other inputs. If there are few suppliers or high switching costs, suppliers may have more bargaining power and can increase their prices, which can reduce the profitability of the restaurant.
3. Bargaining power of buyers: Customers have a lot of bargaining power in the restaurant industry because there are many restaurants to choose from and customers can easily switch to a competitor if they are dissatisfied. This means that restaurants need to focus on providing good service, high-quality food, and a positive customer experience in order to retain customers.
4. Threat of substitute products or services: There are many substitutes for eating at a restaurant, such as cooking at home, ordering takeout, or eating at a different type of restaurant. To mitigate this threat, a restaurant could differentiate itself by offering a unique cuisine, atmosphere, or experience that customers cannot find elsewhere.
5. Rivalry among existing competitors: The restaurant industry is highly competitive, with many restaurants vying for customers. Restaurants can differentiate themselves through their menu, prices, location, service, or other factors in order to stand out from competitors.

Based on this analysis, you could develop a strategy for your restaurant that focuses on offering a unique menu, providing excellent customer service, and creating a welcoming atmosphere to attract and retain customers. You could also work on building relationships with suppliers to ensure a steady supply of high-quality ingredients at a reasonable cost.

This was all from my side. If you have any queries, feel free to reach out on LinkedIn. If you enjoyed reading this article, then you can follow me on medium for further updates. Your suggestions are always welcomed in the comment section.

Happy Learning!!