Define the industry before rating its forces
State the customer group, geography, product or service, and time period you are examining. A broad label such as “technology” can hide markets with very different customers, suppliers, and alternatives. Include substitutes based on the job customers need done, not only products that look alike.
Porter’s framework looks at industry structure and the pressures that can affect competition and long-term returns. It is broader than a list of direct competitors, but it does not calculate profitability or tell you which strategy will succeed.
The five competitive forces
| Force | Question to investigate | Useful evidence to seek |
|---|---|---|
| Threat of new entrants | How difficult is it for a new provider to enter this defined market? | Entry costs, access to distribution, switching costs, regulation, and established scale. |
| Supplier power | How much influence do important suppliers have over price, quality, or availability? | Supplier concentration, alternative inputs, switching effort, and the importance of the input. |
| Buyer power | How much influence do customers have over price and terms? | Customer concentration, switching options, price sensitivity, and the cost of changing provider. |
| Threat of substitutes | What different products or services could solve the same underlying customer need? | Alternative ways to do the job, their relative cost or convenience, and reasons customers might switch. |
| Rivalry among existing competitors | How strongly do current providers compete for the same customers? | Competitor positions, market growth, differentiation, capacity, and the basis of competition. |
A practical analysis sequence
- Write the boundary. Name the market, customer, location, and period so every force is judged against the same scope.
- List evidence before conclusions. Use traceable sources such as supplier terms, customer interviews, public filings, regulation, or observed alternatives. Record the source and date, and mark gaps.
- Describe the mechanism. Explain how a condition gives suppliers, buyers, entrants, substitutes, or rivals influence. Avoid assigning a rating without saying why.
- Rate pressure and confidence separately. If useful, use low, medium, or high pressure, then separately note how strong the evidence is. These are qualitative judgments, not comparable industry statistics.
- Connect the forces to a decision. Identify which pressure matters most to your question, what could change it, and what evidence to gather next.
Hypothetical example: a local meal-kit service
Suppose an owner is considering a meal-kit service in one city. They might investigate how many ingredient suppliers meet the required standards, whether customers can switch to other meal solutions, and what makes it costly or easy for another service to enter the area. These are questions to research, not claims about the city’s market.
The owner would gather current supplier options, speak with potential customers about alternatives, and define which services count as rivals. If reliable information is missing, the analysis should show the gap and the next research step instead of filling it with an invented market share or a confident score.
Common mistakes and limits
- Do not confuse direct competitors with substitutes that meet the same need in a different way.
- Do not treat a high or low force rating as a measured probability or profit forecast.
- Do not assume the same industry boundary works for every customer segment or geography.
- Do not use the framework as a replacement for company-specific competitor research or customer evidence.
The StrategyTools Competitive Analysis tool organizes information you enter about competitors. It does not perform a Five Forces analysis, discover competitors, or verify market data.
Questions about Porter’s Five Forces
What does a Five Forces analysis show?
It gives a structured view of competitive pressures in a defined industry, including entrants, suppliers, buyers, substitutes, and rivalry. It does not predict a company’s results.
Is Porter’s Five Forces the same as competitive analysis?
No. Five Forces examines industry structure and several sources of competitive pressure. Competitor analysis compares particular alternatives using company-level information. The methods can inform each other.
Can I score the five forces?
You can use qualitative labels such as low, medium, or high if you define them and explain the evidence. The ratings are judgments, not objective measurements or forecasts.
Sources and further reading
- The Five Competitive Forces That Shape Strategy, Harvard Business Review
- Porter’s five forces model, BDC
- Porter’s Five Forces Analysis Instrument, Virginia Tech Pressbooks