Learn: Porter's Five Forces

Welcome!Today we'll explore Porter's Five Forces, a tool for analysing the competitive environment of a business. Let's break it down step by step and understand how it helps businesses make strategic decisions.

What is Porter's Five Forces?Porter's Five Forces is a framework developed by Michael Porter. It helps businesses analyse the competitive forces in their industry that affect profitability. These forces shape the strategies businesses should use to succeed.

The Five Forces ExplainedPorter's Five Forces include the following:Competitive Rivalry: The intensity of competition among existing firms.Threat of New Entrants: The risk of new competitors entering the market.Bargaining Power of Suppliers: How much power suppliers have to influence prices.Bargaining Power of Buyers: How much power customers have to demand lower prices or better quality.Threat of Substitutes: The risk of alternative products or services replacing existing ones.

Competitive RivalryThis force examines how intense the competition is within the market. High competition can reduce profitability due to price wars, advertising battles, and product innovations. For example, the smartphone market has fierce competition among brands like Apple and Samsung.

Threat of New EntrantsNew entrants can increase competition in an industry. This threat depends on barriers to entry like start-up costs, economies of scale, brand loyalty, or government regulations. For example, entering the airline industry is difficult due to high costs and strict regulations.

Bargaining Power of SuppliersThis force determines how much influence suppliers have over the price of goods. If there are few suppliers or they provide unique products, their power increases. For example, pharmaceutical companies often have high supplier power due to specialised products.

Review Time!Great work! You've learned about Porter's Five Forces. Now let's test your understanding with a few questions.