Porter’s 5 Forces
Porter’s 5 Forces Framework is a tool for analyzing competition of a business. It’s central thesis is that there are five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. This theory was originated by Michael E. Porter of Harvard University in his 1979 paper How Competitive Forces Shape Strategy.
The 5 forces are:
- Threat of new entrants
- Threat of substitutes
- Bargaining power of customers
- Bargaining power of suppliers
- Industry rivalry
Although it may seem more suitable for analysing industries, as opposed to the position of a particular company and its products withing that industry, it can be useful to think of the 5 forces when planning company & product strategy.
Porter’s Generic Strategies
In coping with the 5 competitive forces there are 3 potentially successful generic strategies that can be followed
- Overall cost leadership
- Typically through high volumes & low costs
- Offering something different
- Typically high end
- Focus (on a narrow market)
- –Focus on cost or differentiation
- –Typically niche products
If you would like to discuss your product strategy with Michael Porter’s theories in mind, then please contact us.