Porter's Five Forces

• Porter’s Five Forces model shows the competitive environment of an industry
• Rivalry within the industry is the central force, with the number of firms and intensity of competition
• Threat of new entrants, substitutes, buyer power, and supplier power also shape the competitive landscape

Porter’s Five Forces is a model that examines the competitive environment of an industry. The five forces include rivalry within the industry, the threat of new entrants, the threat of substitutes, buyer power, and supplier power. Rivalry refers to the number of firms in the market and the intensity of competition. The more rivalry there is, the harder it is for businesses to retain customers and maintain high profits. The threat of new entrants depends on barriers to entry such as startup costs, economies of scale, and brand loyalty. The more barriers there are, the lower the threat of new entrants. The threat of substitutes refers to consumers switching to alternatives outside of the industry. Viable substitutes make it harder for firms to retain profitability. Buyer power is the extent to which customers can influence the business they purchase from. Supermarket buyers have some power due to the availability of other options, but individual customers have less influence due to their small proportion of total sales. Supplier power is similar, with larger businesses having more power in their relationships. The greater the power of buyers and suppliers, the more businesses may see their profits squeezed.