Porter's 5 Forces

Michael E. Porter, a professor at Harvard Business School, developed a framework for understanding the strategic competitiveness of a firm within a specific market. The framework includes an analysis of five concurrent forces that affect a business' ability to compete. The forces include:

1. Threats of substitute products from competitors, including product differentiation, price performance of substitutes and a buyer's ability to switch to a substitute.

2. Threat of the entry of new competitors, such as barriers to entry (i.e. patents, and other intellectual properties rights), brand control, government regulation, capital requirements.

3. Intensity of competitive rivalry, such as the number of competitors, firm growth rates, economies of scale, diversity and depth among competitors, and information complexity.

4. Bargaining power of customers, such as concentration of marketing channels, buyer volumes, prohibitive "switching" costs to buyers, and availability of competitive substitutes.

5. Bargaining power of suppliers, such as prohibitive "switching" costs, availability of alternative suppliers, degree of labor solidarity, and the sensitivity of selling price to supply costs.

The first three of these forces focus on an analysis of a business' competitors within the sector. The last two forces focus on the business' vertical integration with the suppliers and customers.

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