Porter's Five Forces a Model for Industry Analysis

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Porter's Five Forces A MODEL FOR INDUSTRY ANALYSIS The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. Diagram of Porter's 5 Forces
SUPPLIER POWER
Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry

BARRIERS TO ENTRY
Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products

DEGREE OF RIVALRY
-Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes

THREAT OF SUBSTITUTES
-Switching costs -Buyer inclination to Substitute -Price-performance trade-off of substitutes

BUYER POWER
Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers' incentives

I. Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are…...

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