The Porter's Five Forces Template is a powerful tool that enables you to evaluate your company's competitiveness by mapping Porter's Five Forces.
This framework, also known as the Porter's Five Forces Model, breaks down competition into five distinct forces:
1. Supplier power
This force assesses the ease with which suppliers can drive prices up. To evaluate supplier power, you need to consider the number of suppliers offering similar products or services, switching costs, and any unique benefits or aspects that a supplier can offer.
2. Buyer power
The next step is to determine how easy it is for buyers to drive prices down. You need to evaluate factors such as customer acquisition cost, customer lifetime value, and other elements that may give customers leverage to negotiate for lower prices or switch to competitors.
3. Rivalry among existing competitors
This force is driven by the number and capability of competitors in the market. A larger market share held by more numerous and powerful competitors diminishes the power of smaller companies, giving customers and suppliers greater leverage to choose alternatives.
4. The threat of substitute products/services
The presence of close substitute products in a market increases the likelihood that customers will switch to alternative products in response to price increases, thereby reducing your profitability.
5. The threat of new entrants
Profitable markets attract new entrants, which can erode profitability unless incumbents have strong and durable barriers to entry. However, if your product offers unique features from those offered by other competitors, then new entrants pose less of a threat to your business.
Why is Porter's Five Forces analysis important?
The Porter's Five Forces model is a valuable tool for analyzing businesses due to the following reasons:
1. It identifies factors affecting profitability: Completing the Porter's Five Forces Template helps you understand the specific factors hindering growth or profitability and find new competitive advantages.
2. It facilitates better expansion decisions: If you're considering expanding your business, it's crucial to understand the competitive forces at play and how they may affect your business. A Five Forces analysis provides organizations with vital information to make informed decisions about entering a specific industry or increasing their market share.
3. It informs overall strategy: By understanding what shapes the overall market and determines profitability, you can craft a strategy that plays to your strengths while accounting for weaknesses in your industry.
Overall, using this template enables businesses to gain insights into their competitiveness, evaluate potential threats or opportunities, and develop effective strategies that enhance their chances of success in an increasingly competitive landscape.
How to Use Porter’s 5 Forces Template
Discover the greatest market for your product with this template. It can help you develop better strategies and evaluate your competition.
This template makes it very easy to run an analysis of your business. Select the template and fill the five fields in with sticky notes. You can easily color-code them in order to make them easier to identify the topics at only a glance. When analyzing the forces, think about the questions below.
Force 1: Threats of New Entrants
Think about the amount of competition your company faces and the number of competitors you have and how their services or products compare to yours. If your market has few competitors, it can seem attractive, but remember it could be short-lived. If your products are expensive, it can be unattractive and push you to improve your pricing and products.
How easily can others enter the market and become a threat? Who are your competitors? How much does it cost to enter the market? What are the barriers to entry? What does it take to scale? Is the market highly regulated?
Force 2: Threat of Substitute Services/Products
When you think about substitution threats, you must analyze how your product impacts your customer’s lives. As their behavior changes, you need to adapt your product to this. You can even offer a new service or a more cost-effective alternative.
What is the likelihood of your customer replacing your service/product with another one? What is the cost of switching to a replacement? Are there any other substitutes on the market?
Force 3: Bargaining Power of Suppliers
It is important to remember that your supplier is also a business. They are performing the same strategic complications as you. If they offer a niche service, they can charge you more which will impact your bottom line.
What would happen if their prices increased? Is this likely? How easy would it be to find an alternative supplier?
Force 4: Bargaining Power of Buyers
The calculations of buyers can impact your bottom line, much like your supplier. These questions can help you figure out how much leverage your buyers hold. Even if your buyers aren’t businesses, you need to treat them this way.
How many buyers do you have? Could your buyers switch suppliers? How important is your service/product to them?
Force 5: Rivalry Among Existing Competitors
Think about your competitive landscape. Understand why your competitors are failing or succeeding. You need to know what they are doing better or worse.
Who are your competitors? How strong are they? What sets you apart? What would it cost your customer to switch?
