Porter's Five Forces is a framework developed by Michael E. Porter that analyzes the competitive forces within an industry to determine its attractiveness and inform strategic decisions. The model identifies five key forces: competitive rivalry, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and threat of substitutes, each affecting industry profitability and dynamics. While it provides valuable insights for strategic planning, it has limitations, such as oversimplification of complex industries and lack of consideration for rapid market changes.

1. Porter's
Five
Forces
Model
PRECIOUS GRACE C. BRAVO
PRINCESS KAY A. LIGAD
ZAREN GRACE O. VISAGA
JUNE 30, 2024

2. Introduction to Porter's Five Forces
Developed by Michael E. Porter in 1979
Framework for analyzing the competitive forces
within an industry
Helps businesses determine industry
attractiveness and inform strategic decisions

3. Definition of Porter's Five Forces
A tool for analyzing the competitive forces that
shape every industry
Identifies five forces that determine the
intensity of competition and profitability

4. Purpose of Porter's Five Forces
To understand the dynamics of an industry
To identify the strengths and weaknesses
of an industry position
To inform strategic decisions and gain a
competitive advantage

5. Overview
of the
Five
Forces

6. Competitive Rivalry
Definition: The intensity of competition among existing competitors
Examples
High: Streaming Services Industry (e.g., Netflix, Disney+)
Low: Commercial aerospace (e.g., Boeing, Airbus)
Factors: Number of competitors, rate of industry growth, product/service
differentiation

7. Threat of New Entrants
Definition: The Threat of New Entrants is the ease with which new
competitors can enter the market. Industries with high barriers to entry,
such as significant capital requirements or strong brand loyalty, have a
lower threat of new entrants.
High: Pop-up coffee shops, Online retailing business
Low: Airline Industry (e.g., high R&D costs, regulatory barriers)
Factors: Economies of scale, brand loyalty, capital requirements,
regulatory barriers

8. Bargaining Power of Suppliers
Definition: Bargaining Power of Suppliers is
the power suppliers have to drive up prices.
When there are few suppliers or unique
products, supplier power is high.
High: Unique raw
materials (e.g., oils,
rare minerals)
Low: Common commodities
(e.g., local furnitures, bulk
agricultural products)
Factors: Number of
suppliers, uniqueness
of the product,
switching costs

9. Bargaining
Power of
Buyers
Definition: The Bargaining Power of Buyers is
the power customers have to drive prices
down. When buyers are few or purchase in
large volumes, their power increases.
High: Large retailers (e.g., SM
Supermarket, Robinsons)
Low: Telecommunications provider
Factors: Number of buyers,
purchase volume, availability of
alternatives

10. Threat of Substitutes
Definition: The Threat of Substitutes is the extent to which different
products or services can replace existing ones. High availability of
substitutes reduces industry attractiveness and profitability.
High: Public transportation as a substitute for car ownership
Low: Electric Utility Industry
Factors: Availability of substitute products, price-performance
trade-off, switching costs

11. Advantages
of Porter's
Five Forces
Comprehensive analysis of
industry structure
Identifies key competitive
forces
Helps in strategic planning
and decision-making
Applicable to any industry

12. Disadvantages of Porter's Five Forces
May oversimplify complex industries
Static model; may not account for dynamic changes
Focuses on external factors, neglecting internal
capabilities
May not be applicable to non-traditional industries

13. Critiques
of
Porter's
Five
Forces
Some argue it lacks consideration for
digital and rapidly changing markets
May not fully capture the impact of
globalization
Limited focus on collaboration and
strategic alliances
Does not consider regulatory changes
and technological advancements
adequately

14. When to Use Porter's Five Forces
When entering a new market or industry
For strategic planning and competitive analysis
To assess industry attractiveness and profitability
During mergers and acquisitions to evaluate industry
dynamics

15. Conclusion
Porter's Five Forces is a valuable tool for
understanding industry competition
Provides insights into strategic positioning
Useful for a wide range of strategic
decisions