In this guide we'll look at the steps you need to take to create the most effective Porter's Five Forces for your business. 🙌
Want to learn more about the landscape of your current market?
Looking to enter a new country?
Need to see how your strategy fits in the marketplace?
Porter’s Five Forces is a great model to help you evaluate the different external factors that will impact your competitive position over the coming years.
If you’ve not heard of it before, check out our introduction to Porter’s Five Forces.
A detailed Five Forces analysis can provide clarity and help you plan what you need to do in order to continue to be successful. The basic structure of the model looks at five different factors that are external and impact your business:
We’re going to walk through how to establish each force and give it a High, Medium or Low value, before summarising how you compete within the environment.
Five Forces is a framework that requires a more detailed knowledge of the market than ones such as SWOT and PESTLE. You need to prepare for Five Forces as most of the insight being documented is external. The best Five Forces is done in a group where you have experts from Customer Service, Product, Sales and Marketing all in the room.
Ideally be equipped with the following information:
This section is designed to map out how easy it is for a new player to enter the market. It might be an established business like Google or it could be a brand new start-up. In either scenario, how easy would it be to enter your space and make some progress?
Bullet point out a few of your conclusions and decide if the threat is High, Medium or Low.
It’s now time to step outside of your product or service and see how easy it would be to replace it with an entirely new service. Keep in mind this isn’t substituting your product with a competitors product, this is about the industry product being substituted. Similar to how in the 1980s everyone hand landlines, now everyone has mobile phones.
In many cases you’ll already have substitute products that compete against your industry, meaning this section should evaluate their potential, cost, ease and quality. If you’re lucky enough to be in a market where there is no substitute then consider what it would take for one to appear.
Once done, summarise your conclusions in a bullet point list and label the threat to be High, Medium or Low.
Your business uses suppliers to provide your products or services, for example you may be in manufacturing clothing and have a supplier of cotton, or you may be a SaaS business that hosts their software on Azure. List out all the suppliers you use that enable you to provide your product or service to your customers.
Once done consider how powerful they are, what could they do to your business? What pressure can they put on your business?
Once you’ve evaluated how much pressure your suppliers can place on your business it’s time to bullet point out the conclusions and give a rating of High, Medium or Low to the Power of Suppliers.
We’re now at the stage where your customer power is analysed. This is a crucial part as it determines how much pressure a customer can place on you for price, for your product development or customer service. At this point consider the customers you have lost, the sales you have won, and your customer survey feedback.
As with the other sections your next step is to bullet point your conclusions before labelling the Buyer Power as High, Medium or Low.
You’re now in a position where you know the power of both buyers and suppliers and the threats of substitution or new entry, so it’s time for the final section which establishes the competitive rivalry within your marketplace.
For the final time, summarise your findings in bullet points and decide on a High, Medium or Low label for Competitive Rivalry. Remember this section is influenced by the other factors, so take a look at how you’ve labelled the previous areas and consider them in your decision.
You’ve now got a completed Five Forces analysis, well done! It’s helpful to position your current strategy on the diagram, so underneath write a few points about how you’re currently positioning yourself and competing within the marketplace you’ve just detailed.
Now you’ve completed your analysis you’re ready to make use of it. Look out for any quick wins, flag internally any concerns, and consider what it teaches you about your future direction.
We hope you found this guide helpful! 👋