Sir Porter and The Five Deadly Forces

Threat of new entrants

• Assesses how easily new competitors can enter an industry. It looks at barriers to entry—like capital requirements, regulations, or brand loyalty that might deter or attract new businesses.

• New entrants causes competition which eventually decreases profitability. Therefore, the difficulty levels of entering will affect the attractiveness of the industry

Threat of existing competitors

• The threat of existing competition assesses how intense the rivalry is among businesses already operating in an industry.

• Respond by reducing the price of the product, showcasing a clear advantage their product has over the competition, differentiate the product, build customer loyalty and eliminate the competition

• Competitor’s strategies will stiff the competition within the industry When a business faces multiple competitors and opposing strategies, the attractiveness of the industry will be affected

Threat of substitutes

• This force assess the risk that customers will switch to alternative products or services that performs the same function as what is currently offered. Substitutes do not act as direct competitors, but they are different products that can replace what a business offers.

• A business can reduce the threat of substitutes by increasing customer loyalty and a strong brand so that customers feel there's no equal replacement, improving product quality, or monitor trends and invest in substitute products before competitors do.

• When there are substitute products available, there is less chance of customers wanting your products and therefore sales so potential substitutes will affect the attractiveness of the industry.

Bargaining power of customers

• Assess how easily customers can influence businesses based on their ability to switch, compare options, or demand better deals.

• A business can respond by increasing customer loyalty through better service, rewards programs, or unique products. It can also reduce buyer power by differentiating its offerings or creating high switching costs, making it harder for customers to leave.

• When customers have high bargaining power, there are greater consequences for not meeting their demands. Therefore, business’s ability to alter prices and products is negatively affected. Hence, the bargaining power changes the attractiveness of the industry.

Bargaining power of suppliers

• This force looks at the suppliers ability to affect the cost, quality, and accessibility of the goods or services they offer. The profitability of an industry may suffer is suppliers have a lot of influence to demand better terms or higher pricing

• A business can respond by diversifying its supplier base to reduce dependency on any one supplier, negotiating long term contracts. Forming alliances with other buyers to increase purchasing power

• When suppliers have high bargaining power, they will likely to present less favourable options and pressure to accept unfavourable deals. This will eventually increase the cost of running the business, making the industry less attractive.