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USEFUL NOTES FOR:

Porter’s Five Forces

Introduction

Porter’s Five Forces is a framework for assessing and evaluating the competitive intensity and therefore attractiveness of a market or industry.

Threat of new entrants

The threat of new entrants is a measure of how easy it is for competitors to enter your market.

The more capital you have at your disposal, the easier it will be for you to enter the market and compete with existing companies. This can also mean that your products or services are more expensive than those offered by other businesses in your industry, which may cause customers not to buy from you if they believe that others offer cheaper alternatives (or better ones).

As an example, consider how many restaurants there are in New York City: there are thousands! And yet most people know very little about them unless they have been told about one by someone else—and even then it’s hard to remember everything they’ve heard about them because so many details become irrelevant when trying out different ones at random times throughout each day/weekend/month etcetera…

Bargaining power of buyers

In industries with a few buyers, the buyer has less bargaining power. If you have only one buyer and he or she can decide which supplier to buy from, then your supplier might not be able to increase his prices much because there’s no competition from other suppliers who would like to sell their product at a lower price too.

However, in industries with many buyers (like many companies), it becomes harder for suppliers to raise their prices because there are more potential buyers looking for products or services than ever before—and therefore competition between suppliers increases as well.

Bargaining power of suppliers

Suppliers are significant players in the market, and they have considerable bargaining power. This means that they can use their influence to push up prices on the buyer or reduce quality. The supplier might also use this power to force the buyer to take on more of their costs by offering lower prices than what was previously negotiated.

Threat of substitutes

Substitutes are products or services that can be used in place of another. Substitutes are products that are similar to each other, but have different qualities and prices. For example, a car is a substitute for bicycles because it’s faster than them (it does not go as far), has more space inside the vehicle and is easier to park when compared with bikes.

Substitutes can also be found at lower prices than their originals by using competition among sellers of substitutes to drive down costs for consumers so they can buy more of them at this price level without sacrificing quality or safety standards required by law enforcement agencies such as Consumer Product Safety Commission (CPSC).

Intensity of rivalry

The intensity of rivalry is the degree to which two or more firms are engaged in intense competition for the same market share. It is measured through a variety of indicators, such as:

The ease with which new competitors can enter the market

The degree to which substitutes exist for the product or service being sold by a firm (i.e., if there are other similar products on the market)

The degree of buyer loyalty to a particular brand

Conclusion

We’ve seen how Porter’s framework can help us understand the competitive dynamics in a business, but it is not a complete formula. There are many other factors to consider when trying to predict how an industry will evolve. For example, if you want to know how much of an impact Amazon has had on traditional retailers like Wal-Mart or Target, you need to add up all the effects on each company’s revenue (and profits).