7.7.1
Porter's Five Forces
Test your knowledge with free interactive questions on Seneca — used by over 10 million students.
Porter's Five Forces
Porter’s five forces is a model that allows you to analyse the competitiveness of a business environment. The 5 forces model presents five different forces impacting the competitiveness of a business environment:
Bargaining power
- The bargaining power of suppliers relates to how much power suppliers in the market have. If suppliers have more power, the market may be less attractive, as suppliers can charge higher prices.
- The bargaining power of buyers relates to how much power buyers in the market have. If buyers have more power, the market may be less attractive, as buyers can demand a lower price.
- Often bargaining power is the relative number of people. If there is 1 supplier, they are likely to have more power than if there are 100 suppliers.
Barriers to entry
- Barriers to entry relate to how easy it is for a new business to enter the market. If barriers to entry are low, the market will be more competitive as new businesses are likely to enter.
Substitutes
- The threat of substitutes relates to whether customers are likely to buy an alternative product. If this threat is high, the market is less attractive, as customers are more likely to shop elsewhere.
- On a hot day, ice cream and lemonade might be substitutes.
Rivalry
- Rivalry amongst existing competitors refers to how much competition currently exists within the market. The greater the competition, the less attractive the market may be to other businesses.
- How intensely Coca-Cola and PepsiCo compete would be covered in this force.
Advantages of Porter's five forces
- Porter’s five forces model allows businesses to understand the competitiveness of a market and make decisions about their own competitiveness.
- Porter’s five forces model allows new entrants to consider how profitable a market may be.
- It is a good framework to identify strengths, weaknesses, opportunities and threats.
1What is Business?
1.1Understanding the Nature of Business
1.2Understanding Different Business Forms
1.3External Environments
2Managers, Leadership & Decision Making
2.1Understanding Management
2.2Understanding Management Decision Making
2.3Understanding Stakeholders
3Decision Making to Improve Marketing Performance
3.1Decision Making to Improve Marketing Performance
3.2Understanding Markets & Customers
3.3Market Segmentation, Targeting & Positioning
3.4Marketing Mix
3.4.1Marketing Mix3.4.2Product Decisions3.4.3Pricing Decisions & Price Skimming3.4.4Pricing Decisions & Price Penetration3.4.5A-A* (AO3/4) - Pricing & Competition3.4.6Promotional Decisions3.4.7Promotional Decisions 23.4.8Promotional Decisions 33.4.9Distribution Decisions3.4.10Distribution Decisions 23.4.11Digital Marketing3.4.12Evaluating Digital Marketing3.4.13A-A* (AO3/4) - The Marketing Mix & Promotion
4Decision Making to Improve Operational Performance
4.1Setting Operational Objectives
4.2Analysing Operational Performance
4.3Increasing Efficiency & Productivity
4.4Improving Quality
4.5Managing Inventory & Supply Chains
5Decision Making to Improve Financial Performance
5.1Financial Objectives
5.2Analysing Financial Performance
5.3Sources of Finance
5.4Improving Cash Flow & Profit
6Improving Human Resource Performance
6.1Human Resource Objectives
6.2Analysing Human Resource Performance
6.3Improving Organisational Design
6.4Improving Motivation & Engagement
6.5Improving Employer-Employee Relations
7Analysing the Strategic Position of a Business
7.1Mission, Corporate Objectives, Strategy
7.2Financial Ratio Analysis
7.3Overall Performance
7.4Political & Legal Change
7.5Economic Change
7.6Social & Technological Environment
7.7Competitive Environment
7.8Investment Appraisal
8Choosing Strategic Direction
8.1Choosing Areas of Competition
8.2Choosing How to Compete
9How to Pursue Strategies
9.1Change in Scale
9.2Assessing Innovation
9.3Assessing Internationalisation
9.4Digital Technology
10Managing Strategic Change
10.1Managing Change
10.2Managing Organisational Culture
10.3Managing Strategic Implementation
10.4Problems with Strategy
Jump to other topics
1What is Business?
1.1Understanding the Nature of Business
1.2Understanding Different Business Forms
1.3External Environments
2Managers, Leadership & Decision Making
2.1Understanding Management
2.2Understanding Management Decision Making
2.3Understanding Stakeholders
3Decision Making to Improve Marketing Performance
3.1Decision Making to Improve Marketing Performance
3.2Understanding Markets & Customers
3.3Market Segmentation, Targeting & Positioning
3.4Marketing Mix
3.4.1Marketing Mix3.4.2Product Decisions3.4.3Pricing Decisions & Price Skimming3.4.4Pricing Decisions & Price Penetration3.4.5A-A* (AO3/4) - Pricing & Competition3.4.6Promotional Decisions3.4.7Promotional Decisions 23.4.8Promotional Decisions 33.4.9Distribution Decisions3.4.10Distribution Decisions 23.4.11Digital Marketing3.4.12Evaluating Digital Marketing3.4.13A-A* (AO3/4) - The Marketing Mix & Promotion
4Decision Making to Improve Operational Performance
4.1Setting Operational Objectives
4.2Analysing Operational Performance
4.3Increasing Efficiency & Productivity
4.4Improving Quality
4.5Managing Inventory & Supply Chains
5Decision Making to Improve Financial Performance
5.1Financial Objectives
5.2Analysing Financial Performance
5.3Sources of Finance
5.4Improving Cash Flow & Profit
6Improving Human Resource Performance
6.1Human Resource Objectives
6.2Analysing Human Resource Performance
6.3Improving Organisational Design
6.4Improving Motivation & Engagement
6.5Improving Employer-Employee Relations
7Analysing the Strategic Position of a Business
7.1Mission, Corporate Objectives, Strategy
7.2Financial Ratio Analysis
7.3Overall Performance
7.4Political & Legal Change
7.5Economic Change
7.6Social & Technological Environment
7.7Competitive Environment
7.8Investment Appraisal
8Choosing Strategic Direction
8.1Choosing Areas of Competition
8.2Choosing How to Compete
9How to Pursue Strategies
9.1Change in Scale
9.2Assessing Innovation
9.3Assessing Internationalisation
9.4Digital Technology
10Managing Strategic Change
10.1Managing Change
10.2Managing Organisational Culture
10.3Managing Strategic Implementation
10.4Problems with Strategy
Practice questions on Porter's Five Forces
Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.
- 1What are Porter's five forces:Fill in the list
- 2
- 3
Unlock your full potential with Seneca Premium
Unlimited access to 10,000+ open-ended exam questions
Mini-mock exams based on your study history
Unlock 800+ premium courses & e-books