porter's 5 forces step by step

8/17/2019 Porter's 5 Forces step by step

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Use Porter’s Five Forces of Competitive Position Analysis to assess the position of your business.

Template for analysis of competitive forces using Porter’s model

This template is comprised of 5 tables, each of which is used to assess the level of threat posed by one of Porter’s five

forces of competitive position. In each tables the parameters are provided for assessment of the competition along with a

short description of them. The assessment of the parameters is scored on a scale of 1 to 3. In order to assign a score for a

parameter, simply select one of the three statements which best matches to the situation and record the corresponding score

from 1 to 3!. The total number of points for each table is then used to determine the level of competitive threat presented

by each of the five forces.

Step one: assess the competitiveness of the company’s product and the level of competition on the maret

!.! Substitutes

Parameter CommentaryParameter score

" # !

Substitutes(price/quality)

" substitute is capable of achieving the same #uality

at lower prices

Substitutes exist and

account for largeshare on the market

Substitutes exist but

have only recentlyentered the market andaccount for small share

No knownsubstitutes

Total score

! point Low level of threats from substitutes

# points edium level threats from substitutes

" points !igh level of threats from substitutes


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!.# $ndustry competition


" # !

Number of players

The higher the number of

players the higher the level of

competition and ris$ of losing

mar$et share

!igh level of

market saturation

edium level of market saturation

("#$%)

Small number of players

($#")

arket growthrate

The lower the mar$et growth

rate the higher the ris$ of

restructuring of mar$et share

Stagnation or decline

Slowing growth &apid growth

Level of product

differentiation

The lower the level of

differentiation, the higher the

level of standardi%ation and

the higher the ris$ of

consumers shifting betweenvarious companies on the

mar$et

'ompanies sell astandardied

product

he product isstandardied

according to core parameters but also

possess keydiffering features

which provideadditional

advantages

he products of different companiessubstantially differ

from one another

Limitations onraising prices

The lower the level of

opportunity for raising prices

the higher the ris$ of profit

loss due to growth in e&penses

ough pricecompetition* lack of opportunity to raise

prices

here isopportunity to raise prices but only at

the same rate asgrowth in expenses

here is always anopportunity to raise

prices to cover growing expenses as

well as increase profits

Total score

% points Low level of industry competition

&'( points edium level of industry competition

)'!# points !igh level of industry competition


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!." *e+ entrants


" # !

+conomy of

scale

opportunities

The larger the production

volume, the lower the cost of

materials and the lower

overhead costs per itemcreated

Nonexistent,nly certain market players have such

opportunities

Significant

Strong brandswith a high level

of consumer awareness and

loyalty

The stronger the e&isting

brands on the mar$et, the

more difficult it is for new

players to gain a foothold on

the mar$et

No ma-or players.#" ma-or players

account for %0 of themarket

.#" ma-or playersaccount for 1%0 of

the market

2roductdifferentiation

The higher the level of

differentiation, the more

difficult it is for new players

to enter the mar$et and claim

an unoccupied mar$et niche

Low level of product diversity

icro#niches exist3ll possible marketniches are occupied

arket entrycosts

The higher the level of

investment re#uired to get

started in the industry, the

more difficult it is for new

players to enter the mar$et

Low (payback within $#" months

of start of operations)

edium (payback within 4#$. months of

start of operations)

!igh (payback period longer thanone year from start

of operations)

3ccess todistribution

channels

The more difficult it is to

reach the target audience, the

less appealing the industry is

for new players


channels are fullopen

3ccess to distributionchannels requires amoderate level of

investment


channels is limited

5overnment policy

The government can limit or close mar$et entry through

licensing re#uirements,

limitations on access to

important raw materials, and

price regulations

No limitationsimposed by the

state

he state has a limitedinvolvement in the

industry6s functioning

he state

completelyregulates theindustry and

establisheslimitations

&eadiness of existing players

to lower prices

If players are prepared to

lower prices to maintain

mar$et share, then this

presents a significant barrier

for new entrants

+xisting playerswill not lower

prices

a-or players will notlower prices

3ny attempt tooffer lower prices

will be met by

lower prices byexisting players

7ndustry growthrate

The higher the growth rate,

the more eager new players

will be to enter the mar$et

!igh and

increasingSlowing

Stagnation or

decline

Total

( points Low level of threats from new entrants

)'!, points edium level of threats from new entrants

!-'#% points !igh level of threats from new entrants


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Step t+o: Assess the threats coming from consumers

#.! argaining po+er of buyers


" # !

Share of buyers

accounting for large portion of

sales

If a few buyers are ma$ing

large'scale purchases, thecompany may be forced to

ma$e concessions to them

Several clients accountfor more than 1%0 of

sales

3 small portion of clients account for

approximately %0 of sales

he sales volumeis evenly

distributed amongall clients

3ptitude to

switch tosubstitutes

The less uni#ue the

company’s product, the

higher the li$elihood that

the buyer can find a

substitutes with additional

ris$ for the buyer

he company6s productis not unique and there

are fully analogous products available on

the market

he company6s productis partially unique* with

distinctive featureswhich are important for

clients

he company6s product is entirely

unique and thereis nothing

analogous on the

market

2rice sensitivity

The higher the price sensitivity the greater the

li$elihood that the buyer will

see$ a lower price with a

competitor

he buyer will alwaysswitch to the productwith the lowest price

he buyer will switch producers only if there

is a significant pricedifference

he buyer has no price sensitivity

'onsumers arenot satisfied

with the level of quality available

on the market

" lac$ of satisfaction in the

#uality creates latent

demand which can be

satisfied by new entrants or

e&isting competitors

Lack of satisfaction

with the key features of the product

Lack of satisfaction

with the secondaryfeatures of the product

8ull satisfaction

with the product

Total

% points Low level of threats of client loss

&'( points edium level of threats of client loss

)'!# points !igh level of threats of client loss


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Step three: Assess the threats to your business coming from suppliers

".!. argaining po+er of suppliers


# !

Number of

suppliers

The smaller the number of suppliers,

the greater the li$elihood of

unwarranted increases in prices

Small number of suppliers or

monopoly

Large selection of

suppliers

Limitations in theresources of suppliers

The greater the level of limitation of

supplier resources, the greater the

li$elihood of price growth

Limitations in the volume of resources

No limitations

'osts incurred fromchanging suppliers

The higher the costs of switching

suppliers, the greater the threat of

price growth

!igh costs of switchingsuppliers

Low cost of switchingsuppliers

Supplier priorities

The lower the level of priority given

to the industry by the supplier, the

less attention(effort the supplier will

ma$e, which implies a higher ris$ of

poor'#uality wor$

Low priority of the industryfor the supplier

!igh priority of theindustry for the

supplier

Total

% points Low level of supplier bargaining power

&', points edium level of supplier bargaining power

-'( points !igh level of supplier bargaining power

9rite your conclusion:


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;raw 2orter6s 8ive forces

porter's 5 forces step by step

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