Porter's Five Forces Analysis

Overview

When to Use

• User asks whether an industry or market is attractive or profitable
• User evaluates whether to enter a new market or industry
• User needs to understand competitive dynamics beyond direct competitors
• User mentions "barriers to entry", "supplier power", or "industry structure"

• For company-specific strengths/weaknesses → use SWOT
• For macro-environment scanning → use PESTEL
• For product portfolio decisions → use BCG Matrix

Framework

IRON LAW: Industry-Level, Not Company-Level

Each force describes the INDUSTRY structure, not a specific company's position.
"Our supplier raised prices" is a company event.
"Suppliers in this industry are concentrated with few alternatives" is an industry force.

NEVER analyze a single company's situation — analyze the structural conditions
all players in the industry face.

IRON LAW: All Five Forces, Every Time

Analyze ALL five forces before drawing conclusions. Skipping forces produces
misleading assessments. An industry with low rivalry but high substitute threat
is very different from one with low rivalry and no substitutes.

Step 1: Define the Industry Boundary

• What industry? Be specific — "food delivery platforms in Taiwan" not "tech"
• Geographic scope: global, regional, or national
• Time horizon: current state or projected 3-5 years

Step 2: Analyze Each Force

• Capital requirements, economies of scale, brand loyalty, regulatory barriers
• Access to distribution channels, switching costs, incumbents' response

• Supplier concentration, uniqueness of inputs, switching costs
• Forward integration threat, importance of volume to supplier

• Buyer concentration, price sensitivity, product differentiation
• Backward integration threat, switching costs, information availability

• Price-performance of substitutes, switching costs
• Buyer propensity to substitute, functional equivalence

• Number and size of competitors, industry growth rate
• Product differentiation, exit barriers, fixed costs structure

Step 3: Assess Overall Industry Attractiveness

• More forces = High pressure → less attractive (lower profitability)
• More forces = Low pressure → more attractive (higher profitability)
• Identify the dominant force — the one that most constrains profitability

Step 4: Strategic Implications

• Which forces can the company influence or reshape?
• Where should the company position to minimize negative forces?
• What structural changes might shift forces in the future?

Output Format

# Porter's Five Forces: {Industry} in {Geography}

## Industry Definition
- Industry: ...
- Geographic scope: ...
- Time horizon: ...

## Five Forces Assessment

| Force | Pressure | Key Drivers |
|-------|----------|-------------|
| Threat of New Entrants | High/Med/Low | {top 2-3 drivers} |
| Supplier Power | High/Med/Low | {top 2-3 drivers} |
| Buyer Power | High/Med/Low | {top 2-3 drivers} |
| Threat of Substitutes | High/Med/Low | {top 2-3 drivers} |
| Industry Rivalry | High/Med/Low | {top 2-3 drivers} |

### 1. Threat of New Entrants: {rating}
{Analysis with evidence}

### 2. Bargaining Power of Suppliers: {rating}
{Analysis with evidence}

### 3. Bargaining Power of Buyers: {rating}
{Analysis with evidence}

### 4. Threat of Substitutes: {rating}
{Analysis with evidence}

### 5. Industry Rivalry: {rating}
{Analysis with evidence}

## Overall Assessment
- Industry attractiveness: High / Medium / Low
- Dominant force: {which force most constrains profitability}
- Profitability outlook: ...

## Strategic Implications
1. ...
2. ...

Examples

Correct Application

Incorrect Application

• "Our flagship store has strong foot traffic" → This is a company fact, not an industry force. Violates Iron Law: analyze industry structure, not individual company position.
• Only analyzed "Rivalry" and "New Entrants", skipped other three forces → Violates Iron Law: all five forces required. Missing supplier/buyer/substitute analysis gives incomplete picture.

Gotchas

• Confusing company position with industry structure: "We have a strong brand" is not relevant to Five Forces. "Brand loyalty creates high barriers to entry for the industry" is.
• Overlooking substitutes: Most analysts underweight this force. Ask: "If prices in this industry doubled, what would customers switch to?"
• Static analysis: Five Forces describes current structure. Industries evolve — note emerging shifts (e.g., digital disruption lowering entry barriers).
• Industry boundary too broad: "The food industry" is not analyzable. Narrow to a specific segment with shared competitive dynamics.
• Treating forces as independent: Forces interact. High buyer power + low switching costs amplifies the effect of new entrants.

References

• For comparison with SWOT, PESTEL, and other strategy frameworks, see

  references/framework-comparison.md