Porter 5 forces analysis

Michael Porter's framework proposes 5 forces that determine the attractiveness of a industry.
Porter referred to these forces as the microenvironment, to contrast it with the more general
term macroenvironment. These forces close to a company that affect its ability to serve its
customers and make a profit. A change in any of the forces normally requires a company to
re-assess the marketplace.
Four forces -- the bargaining power of customers, the bargaining power of suppliers, the
threat of entry barriers and exit barriers, and the threat of substitute products --
combine with other variables to influence a fifth force, the level of competition in an industry.
Each of these forces has several determinants:

• The bargaining power of customers

o buyer concentration or number of customers
o Size of customer segments
o bargaining leverage
o buyer volume – do they buy in volume or not
o buyer switching costs
o ability of customers to backward integrate
o availability of existing substitute products
o buyer price sensitivity
o price of total purchase
• The bargaining power of suppliers
o presence of substitute inputs
o few suppliers present compared to many firms operating the industry
o supplier switching costs
o degree of differentiation of inputs
o threat of forward integration by suppliers
o backward integration by manufacturer – in this case bargaining power
of suppliers is low
o cost of inputs relative to selling price of the product
o importance of volume to supplier
• Entry and Exit Barriers
o the existence of barriers to entry
o the existence of barriers to exit
o capital requirements
o fixed cost allocation per value added
o government policies
o access to distribution
o absolute cost advantages
o learning curve advantages
o economies of scale
o proprietary product differences
o brand equity
o switching costs
o expected retaliation
• The threat of substitute products
o buyer propensity to substitute
o relative price performance of substitutes
o buyer switching costs
 o perceived level of product differentiation
• The intensity of competitive rivalry
o industrial growth
o industry overcapacity
o diversity of competitors
o informational complexity and asymmetry
o brand equity