Five Forces
Five Forces is a framework developed by Harvard professor Michael Porter in 1979. It has become one of the most useful and popular business strategy tools because it helps companies assess industry attractiveness, how trends will affect industry competition, which industries a company should compete in and how can position themselves for success (Porter 1987). An attractive market is one where there is higher overall predicted profitability.
The Five Forces analysis consists of five substeps:
- Market competitiveness
- Bargaining power of buyers
- Threat of substitution
- Threat of new entrants
- Bargaining power of suppliers
Using Five Forces Analysis on Planium Pro
To complete section, on the left-hand side menu bar, click the + to expand the ‘Marketing’ menu and select ‘Five Forces’.
When responding to the questions below, consider the main market the business plans to launch in. Please maintain the boundaries of this market in the responses. The average score, minimum score, and maximum score will be automatically calculated based on the numbers input in each field.
1. Market Competitiveness
This refers to how competitive and profitable a market is. The more competitive a market, the lower the profit opportunity becomes. Consider how competitive the industry is for the business or project to sell to customers. This includes the number of competitors in the industry, the presence of substitute products or services, and the power of customers to influence business.
Rank the main market on each of the criteria below, from 1 (very low) to 5 (very high).
- Market saturation: Number of competitors.
- Market diversity: Diversity of competition.
- Industry concentration: Concentration ratio of an industry.
- Industry growth: Pace of growth of an industry.
- Quality differences: Key differences between companies.
- Brand loyalty: How loyal customers are.
- Barriers to exit: Companies can only stay within this market.
- Switching costs: The cost to switch if a buyer is dissatisfied.
This refers to how much impact customers have on pricing structures. The more power a buyer has to demand lower prices or higher quality, the lower the profit opportunity becomes. Detail the level of impact customers have on the business or projected if they choose to switch to other providers. The level of power customers hold depends on the industry, for instance, few buyers and numerous sellers gives the customer greater influence.
Rank the main market on each of the criteria below, from 1 (very low) to 5 (very high).
- Buyer concentration: Number of customers.
- Size of each customer: Number of orders per buyer.
- Differences between competitors: How different competitors are from one another.
- Price sensitivity: Buyers sensitive to changes in price.
- Available substitutes: Number of alternatives or substitutes available.
- Buyer’s information availability: Buyer ability to gather information about companies.
- Switching costs: The cost to switch if a buyer is dissatisfied.
Finally, in the box add any other information applicable to Bargaining Power of Buyers.
3. Threat of Substitution
This refers to how much control a supplier has over the existing market. The more power a supplier has to sell their goods at a higher cost or offer lower quality items, the lower the profit opportunity becomes. Consider the availability of substitute products or services in the industry, and how likely customers are to purchase these products or services instead of yours. An availability of viable substitutes could impact the kinds of prices that customers are willing to pay, for example.
Rank the main market on each of the criteria below, from 1 (very low) to 5 (very high).
- Available substitutes: Number of alternatives or substitutes available.
- Buyer propensity to substitute: Likelihood of buyer finding a substitute.
- Relative price performance of substitute: Price of substitutes in comparison.
- Perceived level of differentiation: Buyer understanding of quality differences.
- Switching costs: The cost to switch if a buyer is dissatisfied.
Finally, in the box add any other information applicable to Threat of Substitution.
This refers to opportunities where customers can easily substitute one product/service for another if they choose to do so. The easier it is for customers to substitute, the more competitive the market becomes. Discuss how likely it is for new competitors to enter the market, and the level of impact new entrants would have on the business. Consider how much competition already exists in your industry, and the kinds of entry barriers that new competitors face.
Rank the main market on each of the criteria below, from 1 (very low) to 5 (very high).
- Barriers to entry: Number of barriers to entry.
- Economies of scale: Number of large companies with high quantity output, low costs.
- Brand loyalty: How loyal customers are.
- Capital requirements: Need for large capital investments.
- Cumulative experience: How advanced and experienced is the market.
- Government policies: Regulatory requirements that may affect new entrants.
- Access to distribution channels: Strength of existing distribution channel relationships.
- Switching costs: The cost to switch if a buyer is dissatisfied.
Finally, in the box add any other information applicable to the Threat of New Entrants.
5. Bargaining Power of Suppliers
This refers to the ease of entering the market. The easier it is for other organisations to enter, the more competitive the market becomes. Detail the level of power held by suppliers in your business or project’s industry. Consider what level the business and its competitors rely on key suppliers, and whether could certain actions by these suppliers impact business operations.
Rank the main market on each of the criteria below, from 1 (very low) to 5 (very high).
- Quantity of suppliers: Number of suppliers.
- Capacity of suppliers: Specific expertise or technology needed from suppliers.
- Supplier specialness: No other suppliers available.
- Contractual conditions: Any obligations to remain with suppliers.
- Switching costs: The cost to switch if a supplier is dissatisfied.
Finally, in the box add any other information applicable to Bargaining Power of Suppliers.
Click ‘Save’ to save.
Click ‘Chart Preview’ to view the analysis results.
Analysing Five Forces Results on Planium Pro
Under ‘Five Forces Introduction’, you can input any introductory information that may benefit your client or investor.
‘Analysis Results’ is the section to write-up the analysis on the graph and describe any key themes that are present in the data.
Click ‘Save’ to save.
Click ‘Report Preview’ to view the write-up in report format.
