Home arrow Strategic Management arrow Competitive Forces in Porter Model  
Competitive Forces in Porter Model
Five competitive forces in Porter's Model are as follows:

1. Rivalry among competing sellers (a strong, moderate, or weak force; weapons that rivals are relying upon in their efforts to outcompete one another)
2. Threat of potential entry (a strong, moderate, or weak force; assessment of entry barriers)
3. Competition from substitutes (a strong, moderate, or weak force, and why)
4. Power of suppliers (a strong, moderate, or weak force, and why)
5. Power of customers (a strong, moderate, or weak force, and why)

Industry competitors

The intensity of rivalry between industry competitors depends upon, for example:
- The concentration of the industry (numerous competitors of equal size will lead to intense rivalry)
- Rate of industry growth (slow growth will tend towards greater rivalry)
- Value of fixed costs (high fixed costs might be a temptation to cut prices)
- Whether the product is a commodity dependent upon price and service
- The similarity of competitor strategies (if they have different ideas of how to compete will run into each other continuously)
- Whether the firm has high stakes in achieving success
- Whether the industry exhibits high exit barriers (if yes, then firms will tend to remain i industry even if they are making low or negative returns)

You can donwload excellent powerpoint slides on marketing management and business strategy here.

New entrants

New entrants can potentially serve to increase the degree of competition in an industry. In turn, the threat of new entrants is largely a function of the extent to which barriers to entry exist in the market. Some of the key factors affecting these entry barriers include:

Economies of scale
Product differentiation and brand identity
Capital requirements
Switching costs
Government policy
Access to distribution

Because high barriers to entry can make even a potentially lucrative market unattractive (or even impossible) to enter for new competitors, the marketing planner should not take a passive approach but should actively pursue ways of raising barriers to new competitors.

Substitute products

Substitute products can limit the potential of an industry by placing a ceiling on prices it can charge. If the industry is successful and earning high profits then it is more likely that competitors will enter the market via substitute products in order to obtain a share of the potential profits available.


The bargaining power of suppliers is greater when, for example:
- Supply is dominated by a few companies and they are more concentrated than the industry they sell to
- Their products are unique or differentiated, or if they have built up switching costs
- They are not obliged to contend with other products for sale to the industry
- They pose a credible threat of integrating forward into the industry's business
- The industry is not an important customer to the supplier group


The bargaining powers of buyers is greater when, for example:
- They are concentrated or purchase in large volumes
- The products they purchase are standard or undifferentiated
- The products they purchase from the industry form a component of the product and represent a significant fraction of the cost
- They earn low profits which create a great incentive to lower purchasing costs
- The industry's product is unimportant to the quality of the buyer's products
- The industry's product does not save the buyer money
- The buyers pose a credible threat of integrating backwards to manufacture the industry's product

A company can improve its strategic posture by finding suppliers or buyers who possess the least power to influence it adversely.

Source of Reference:
Arthur Thompson and Strickland, Strategic Management: Concepts and Cases, McGraw Hill. You can obtain this excellent book here

You can download excellent powerpoint slides on Marketing Strategy and Marketing Management HERE.

Indonesian version of strategy article like this can also be seen at www.StrategiManajemen.net