Michael Porter's five force model

What are Porter’s Five Forces? Why do marketers use it?

Porter’s Five Force Model is an important tool which is used to analyze the competitiveness of the market. According to this, there are 5 industry forces which decide the intensity of competition and the potential of profitability, which further comments on the attractiveness of a market.



         
Fig. Porter’s Five Force Model

The five forces are the following:
Rivalry among Competitors: The most important force in this model is the number of competitors and their competitive advantage over others in the market. If there are many competitors for a similar kind of product, the market is unattractive.
Bargaining power of Suppliers: If the number of suppliers is less, they will have an upper hand over fixing price. As a manager, we have to maintain the production. If there is no other supplier for a particular part or raw material, we will have to compromise and adhere to the suppliers’ demands. So, very less number of suppliers often makes the market unattractive.
Bargaining power of Buyers: If the total number of buyers for that product is less, they have an advantage. To maintain sales, we have to compromise on their terms then. It again reduces the profitability of the firm. So, very less number of buyers also makes the market unattractive.
Threat of substitute products: If the market is full of very close substitute products of our product, the switching cost for a buyer would be very low. In that case, there will not be any loyal customer, as buyers will purchase on the basis of price and quality only. It makes our product’s profitability less. So, a high number of close substitutes also makes the market unattractive.

Threat of new entrants: If the market is profitable, and there are not very high barriers to entry by the government or social laws, there is a high chance that new players will enter into it. It would decrease the profitability of our product. So, low barriers to entry also make the market unattractive.  

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