75
Source: Porter, M.E., "Competitive Strategy" (1980)
Suppliers Industry Buyers
Competitors
Substitutes Potential Entrants
Rivalry Among Existing Firms
Threat of new entrants
Bargaining power of buyers
Threat of substitute products or services Bargaining power
of suppliers
FORCES DRIVING INDUSTRY COMPETITION – THE ORIGINAL MODEL
PORTER’S FIVE FORCES MODEL
76
Suppliers Industry Buyers
Competitors
Substitutes Potential Entrants
Rivalry Among Existing Firms
Threat of new entrants
Bargaining power of buyers
Threat of substitute products or services Bargaining power
of suppliers
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
77
Source: Porter, M.E., "Competitive Strategy" (1980)
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
78
Suppliers Buyers
Potential Entrants
Substitutes Industry Competitors
Rivalry Among Existing Firms
Th rea t o f s ub sti tut e pro du cts or se rvi ce s
Th rea t o f n ew en tra nts
Barg ain
ing p ow er of b uye rs
Barg ain
ing p ow of s er
upp liers
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
79
Industry Rivalry
Suppliers Buyers
Potential Entrants
Substitutes
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
Industry Rivalry
Suppliers Buyers
Potential Entrants
Substitutes
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
81
Suppliers Industry Buyers
Competitors
Substitutes Potential
Entrants
Rivalry Among Existing Firms
Threat of new entrants
Bargaining power of buyers
Threat of substitute products or services Bargaining power
of suppliers
The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential
is measured in terms of long run return on invested capital.
“
”
-- Michael E. Porter, 1980
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
82
The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential
is measured in terms of long run return on invested capital.
“
”
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
-- Michael E. Porter, 1980
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
83
An assessment of how easy it is for suppliers to
drive up prices
Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives
in response to price increases
Profitable markets attract new entrants,
which erodes profitability
An assessment of how easy it is for buyers to
drive prices down
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
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Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
85
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
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tamquam te cum, eu eam
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tamquam te cum, eu eam
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tamquam te cum, eu eam
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
86
New entrants to an industry bring new
capacity, the desire to gain market share, and often
substantial resources.
“
”
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
-- Michael E. Porter, 1980
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
87
Buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and
playing competitors against each other -all at the expense
of industry profitability.
“
”
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
-- Michael E. Porter, 1980
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
88
Substitutes limit the potential returns of an industry by placing a ceiling
on the prices firms in the industry can profitably
charge.
“
”
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
-- Michael E. Porter, 1980
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
89
Suppliers can exert bargaining power over participants in an industry
by threatening to raise prices or reduce the quality
of purchased goods and services.
“
”
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
-- Michael E. Porter, 1980
FORCES DRIVING INDUSTRY COMPETITION
PORTER’S FIVE FORCES MODEL
90
Rivalry among existing
competitors takes the familiar form of jockeying for position
-using tactics like price competition, advertising
battles, product introductions, and increased customer
service or warranties.
“
”
Industry Competitors
Rivalry Among Existing Firms
Suppliers Buyers
Potential Entrants
Substitutes
-- Michael E. Porter, 1980
WORKSHEET 1