This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/porters-five-forces-235 Developed by Michael Porter, Porter?s Five Forces is a classic business framework for evaluating the attractiveness of a particular industry by analyzing 5 forces. It is useful to utilize Porter?s Five Forces in conjunction with a SWOT analysis of the industry.

1. Business Framework
Porter’s Five Forces
Developed by Michael Porter, Porter’s Five Forces
is a classic business framework for evaluating the
attractiveness of a particular industry by analyzing
5 forces. It is useful to utilize Porter’s Five Forces
in conjunction with a SWOT analysis of the
industry.
4. Suppliers
Suppliers
negotiation
power
2. Competitors
in the industry
Rivalry among
existing
companies
1. Potential new
competitors
Threat by new
competitors
3. Substitution
products
Threat by
substitution
products
5. Customers
Buyers’
negotiation
power
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2. 3
Porter’s Five Forces – Framework Diagram
4. Suppliers
Suppliers
negotiation power
2. Competitors in
the industry
Rivalry among
existing companies
1. Potential new
competitors
Threat by new
competitors
3. Substitution
products
Threat by
substitution
products
5. Customers
Buyers’ negotiation
power

3. 5
Total U.S. printed media revenues, 1989-1999
Includes both consumer and advertising spending
The publishing industry has seen only modest increases in sales in recent
years
Source: Veronis, Suhler & Associates; S&P Industry Survey
Note: Magazine and newspaper spending includes both advertising and consumer spending
The internet provides an innovative new distribution medium that magazines and newspapers can use
to recover readers and lure advertisers.
0
20
40
60
80
100
120
140
99E98E97E96E
$ Billions
95E949392919089
EXAMPLE
Total revenues CAGR
Newspapers
Books
Magazines
• Newspaper and magazine revenue
growth has been driven by price
increases, as circulation has been flat
to falling
• Newspapers and magazines share of
total advertisers’ spending has also
fallen from 32% to 28% over the last
five years
• Book publishers have seen growth in
book unit volumes, with stable prices:
– Books remain a popular source for
access to fiction and non-fiction
despite a growing number of
substitutes
– Recent growth of discount stores
has helped increase sales
1989-1994
4.6%
1994-1999E
5.7%

4. 7
Leaders in the PC business have changed as quickly as the need for
computing power
New entrants and industry consolidation are forcing competitors to continually redefine their
business strategies.
U.S. Unit Market Share of top 10 competitors
(quarterly changes in market share)
40%
30%
20%
10%
0%
U.S. Unit
Market Share
70%
60%
50%
2Q 1994 4Q 19944Q 1993
CompanyX
1Q 19943Q 19932Q 19931Q 1993 3Q 1994
EXAMPLE
CompanyX
CompanyX
CompanyX
CompanyX
CompanyX
CompanyX
CompanyX
CompanyX
CompanyX

5. 9
Several factors determine the bargaining power of buyers
A buyer group is powerful when:
• It is concentrated or purchases large volumes relative to seller sales
• Its purchases from the industry represent a significant fraction of the buyers’ costs or purchases
• It purchases standard or undifferentiated products
• Brand identification is low
• Its switching costs are low
• Its profits are low
• It poses a credible threat of backward integration
• Its purchases from the industry is unimportant for the quality of its products or services
• It possesses full information
These factors may change over time and alter buyer power.

6. 11
Business
Distinct distribution channels serve the two major different end-user
segments
Massive increase of home PC usage has increased the strength of the mainstream channel, especially
retailers.
Source: IDC and Merrin Information Services, Inc.
Channels
Direct Sales
System Integrators (SI)
Value-Added Resellers (VAR)
Dealers
Computer Superstores
Mass Merchants
Consumer Electronic Stores
Office Stores
Mail Order
Direct Response
Value-added
channels
Mainstream
channels
Definitions
Those sales made by a manufacturers’ sales force, agent, or
representative
Provide customized value-added solutions for clients
Offer unique, tangible solutions “off-the-shelf” to targeted customers
The “traditional” computer dealer channel. Do not add unique value
to the system but do offer some value in the form of support,
training, or other services
Large, well-merchandized store fronts , with most revenue
generated by computer-related sales
Typically offer a wide range of products, including computer-related
equipment
Offer a wide range of electronic merchandise, including computer-
related items
Retailers and resellers focusing on office supplies
Third-party computer sales that use telephone to perform all levels
of sale
Direct telephone sales from manufacturers not using third parties
Typical buyer
Home users
EXAMPLE

7. 13
Supply Chain pressures have encouraged publishers to explore non-print
opportunities
Print publishers are rushing into these substitutes to pre-empt a push from niche players.
New innovation As a substitute for …
EXAMPLE
Books Magazines Newspapers
Telephone Info. Services  
Fax Services 
Books on cassette 
CD-ROM  
Online / internet  

8. 15
Paper companies’ strong leverage is pushing publishers to explore non-
print options
Many newspapers and magazines are already on the web, piloting the feasibility of an online
presence.
Many publishers and printers have seen the price of paper double in the first half of 1995 alone:
A world paper shortage has resulted from increased demand for paper-based information
North American paper producers have the option to sell to more lucrative foreign markets, leading to a sharp rise in North
American exports
Foreign producers also prefer to sell to more lucrative markets
Even partial movement towards non-print media affords publishers greater bargaining power with conventional
suppliers
Independent
Printers
OtherInk Suppliers
Paper Companies
North American Market Share, 1994
Top 5 Top 10
Books 51.2% 74.7%
Magazines 56.7% 86.5%
Newspapers 41.1% 64.4%
Publishers
Source: Publishers Weekly
EXAMPLE

9. 17
Porter’s Five Forces – Top Tips
Hints and
Pitfalls
Data Sources
Related
Analytics
 Industry reports
 Analysts’ reports
 Database searches
 See also related analytics sources
 Do:
– Define precisely the industry before conducting analysis.
– Quantify your findings where possible.
 Don't:
– Just use as a static tool – show trends in each of the areas.
 PEST
 SWOT
 Segment attractiveness
 Product life cycle
 Product substitution
 Competitors comparison

10. 19
Porter’s Five Forces – Metrics & Scoring (1 of 6)
Economies of scale
Product differentiation
Brand identity
Conversion costs
Access to sales channels
Capital needs
Access to state-of-the-art technology
Access to raw materials
Protection by government
Experience effect
Specialized assets
One-time exit costs
Strategic linkages
Emotional restraints
Legal and social restrictions
Number of comparable competitors
Industry growth
Fixed or storage costs
Product characteristics
Capacity increases
Diversification of competitors
Strategic assignments
EntrybarriersExitbarriers
Rivalryamong
competitors
little
poor
poor
low
broad
low
broad
broad
not available
unimportant
many
high
many
many
many
many
slow
high
consumables
large steps
high
many
Highly
unattrac-
tive
Un-
attractive
Neutral
Attrac-
tive
Highly
attractive
high
pronounced
high
high
limited
high
limited
limited
strong
very important
few
low
few
few
few
few
fast
low
specialised prod.
continuous
low
few

11. 21
Availability of closely related substitution
products
Users’ conversion costs
Profitability and aggressiveness of the
substitution product manufacturers
Value for money of substitution products
Industry protection
Industry regulations
Availabilityof
substitution
products
Authoritymeasures
high
low
high
high
disadvantageous
disadvantageous
low
high
low
low
advantageous
advantageous
Political continuity
International capital transfer
low
limited
high
unlimited
Customs
Foreign exchange operations
high
limited
low
unlimited
Foreign ownership
Help for competitors
limited
substantial
unlimited
no
Highly
unattrac-
tive
Un-
attractive
Neutral
Attrac-
tive
Highly
attractive
Porter’s Five Forces – Metrics & Scoring (3 of 6)

12. 23
Competitive
Dimensions
Suppliers
Factors Influencing the Relevant Competitive Dimensions
 Factors increasing the suppliers’ negotiation power :
– Large competitive advantages of the delivered product
– Low number of potential suppliers
– Great importance of the product for the quality of the client’s product
– High conversion costs when switching the supplier
– Low significance of the client for the supplier
– Credible interest in a forward integration
Short Characterization of
the Industry
Customers  Factors increasing the buyers’ negotiation power:
– High market power at buyer side
– Large number of alternative providers for the buyer (standardised exchangeable
products)
– Cost and market transparency for the buyers (ex. marketplaces)
– Few buyers emerge in a concentrated fashion
– Low conversion costs and risks for the buyer when switching the supplier
– High industry products’ share of total costs at buyer side (strategic purchasing
policy)
– Revenue problems at buyer side, who want to pass them on to their suppliers
– Credible threat with backward integration in the value chain
Porter’s Five Forces – Metrics & Scoring (5 of 6)

13. 25
Porter’s Five Forces – Metrics & Scoring Template
Industry Attractiveness
Currently Future
low middle high low middle high
…
…
…
…
…
…
…
Overall assessment

14. 1
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