The five forces model of Porter is an analysis to determine the market pressure in the meso analysis. This is not a competitive analysis model, but a meso environmental analysis (industry analysis) for your marketing plan. The pressure in the market ultimately determines whether you will enter this market. This article explains the variables with which this is analyzed.
Do I need Porter’s 5 forces model?
You need the 5 forces model of Porter if you want to analyze how competitive the market, industry or industry and competition is. This model can be used to estimate the strength of the 5 forces in the industry. Porter’s five-force model also shows how attractive the industry is.
Which variables do I need?
This strategic industry analysis requires variables to be able to analyze the pressure in the industry.
- The power of the suppliers
- The power of the buyers
- The extent to which substitutes and complementary goods are available
- The threat of new entrants to the market
- Internal competition from market players
How can I apply Porter’s 5 forces model?
The threat of new entrants to the market
The power of threat from new entrants indicates how easy it is to enter the market with a new party. Before entering a market, ask yourself the following questions:
- Do you need a lot of capital to start in this industry? (start-up costs)
- What are the steps of the distribution channel?
- How is the competition to enter this market?
Power of buyers
The power of the buyers influences competition. They can put pressure on the price by playing off competitors against each other. With this strength of Porter’s five-force model, the product may be a standardized or specialized product. Because of these properties, the customer will switch less quickly. Supply and demand therefore play an important role in this.
In addition, it is important to know what interest the customer has when buying a product. When the interest is high, the customer will be less satisfied with an alternative product. The factor here is that the added value for the product for the customer weighs heavily in this strength.
Power of suppliers
The power of the suppliers influences the pricing, quality and continuation of the company. When analyzing this power of Porter’s 5-force model, it is important to know how many suppliers there are, how they impact the industry and how easy it is to switch to another supplier.
Substitutes and complementary goods
The extent to which substitutes and complementary goods are available influences the role of a substitute product in this power. These substitutes pose a threat if this subsitute brings about a marked improvement and a lower price. The industry becomes less attractive as more subsitutes are developed.
Complementary goods of the Porter’s 5 forces model are goods that complement each other well. In the car industry, these are the petrol and the car. They complement each other well and offer each other opportunities in the market when it comes to the rise in oil prices.
Internal competition from market players
The power of internal competition of Porter’s 5 forces model influences competition within the market. There must be clarity about the competition. You analyze, among other things:
- What market form you are in
- How many competitors there are
- How fast the market is growing
What can I get out of it?
With the elaboration of the 5 forces model of Porter you determine a strategy and you can draw conclusions about the opportunities and threats of the market. This allows the company to prepare, for example, before entering the market.
In addition, you analyze how competitive the market is, in which the organization is or wants to enter. It is important to what extent the market is competitive, otherwise this market is therefore less attractive to enter. From your conclusions of Porter’s 5 forces model, you can also conclude where the pressure is in the market, where you have little influence.