Michael Porter developed Five Forces, one of the most popular busness frameworks for analysing marketplaces. Less commonly known is a revision of this model that included Six Forces. We learn more…
The Six Forces Model is an extension of the Five Forces framework, and is used to analyse and understand the forces shaping your competitive marketplace and impacting your own strategic options. As with Five Forces, this model covers dynamics of the customers, the power of suppliers, the risk you’ll be substituted with a different product or service, the different direct competitors, the risk of new entry to the market and adds the force of complementary products.
Five of the forces are the same as in the Five Forces model:
Power of Buyers:
This covers your customers and is a summary of their power to control your price point or overall direction. Factors include:
Power of Suppliers:
This covers any supplier you use in developing a product or providing a service, such as materials used when manufacturing or software used when servicing. Factors include:
Risk of Substitutes:
This force looks at how easy it would be for your product or service to be replaced with an alternative. Factors include:
Keep in mind this force is not about competitor products that are the same as yours, it’s about substation.
Risk of New Entrants:
The force of New Entrants examines how easy it is for new entratns to enter the market. Keep in mind:
This force isn’t just start-ups – large, established companies could move into your market too.
This force is commonly discussed within companies as it looks at the existing competition to your product and service. Factors to consider when rating this force are:
Your sales team would be helpful when identifying these forces.
This is the new one!
Complementary products and services can have a significant impact on your business, and this force examines that impact. For example, take a business that produces a case for Apple’s iPhone range. If Apple release an updated iPhone, these companies are likely to see an increase in the sales of iPhone cases. Conversely, if Apple see a decline in iPhone sales, then so will the accessory companies. Factors to consider:
Complementary products are defined by Porter as products that offer more value together than apart.
The Six Forces Model has a number of advantages:
As with Five Forces, there are some limitations to Six Forces Model:
The Six Forces Model can be a really powerful way to analyse your environment if you ensure you prepare with the following:
If you’ll be doing Six Forces Model in a group, remember to share this information in advance.
Andrew Grove is credited with adding a sixth force to the original Five Forces model.
Six Forces Model is best developed as a group project. Due to the range of forces, the team who analyse the framework should be composed of senior sales, marketing or product individuals, generally who are outward looking and are aware of the latest market developments.
Just like Five Forces, this model becomes out of date quicker than many other frameworks because it’s so reliant on what is happening externally and the activity of other businesses. It is best conducted whenever a market is being analysed for entry, investment or strategic decision making.
Get the latest strategy insights and tips from Lucidity twice a month. We never spam and you can unsubscribe any time.