Michael Porter introduced the Five Forces in the Harvard Business Review in 1979 ("How Competitive Forces Shape Strategy") and revisited them in 2008. The idea is simple: an industry's profitability is not decided only by the rivals you see. Five forces together decide how much value businesses in a market can keep.
- Competitive rivalry: how hard existing competitors fight.
- Threat of new entrants: how easily new businesses can start competing.
- Threat of substitutes: how easily customers can meet the need another way.
- Bargaining power of buyers: how much customers can push prices down.
- Bargaining power of suppliers: how much suppliers can push your costs up.
Strong forces squeeze margins. Weak forces leave room for profit. The strategy question is which forces you can weaken.
How to score each force
You do not need industry data to use the framework. Rate five statements per force from 1 (not true) to 5 (very true), and average them. The free Five Forces tool uses these questions:
Rivalry is strong when there are many similar-sized competitors, growth is slow, products are hard to tell apart, switching is cheap and rivals discount or advertise heavily.
New entrants are a strong threat when starting up needs little capital, licences are easy, incumbents have little loyalty or scale advantage, channels are open and new players have recently appeared.
Substitutes are a strong threat when customers can solve the need another way, substitutes are cheaper or more convenient, DIY is realistic and technology keeps creating alternatives.
Buyer power is strong when customers can compare prices easily, a few large customers dominate revenue, customers are price-sensitive or could do the work themselves.
Supplier power is strong when few suppliers provide key inputs, switching suppliers is costly, inputs are specialised, suppliers could sell directly to your customers, or you are a small customer to them.
An average of 3.7 or above counts as high; 2.3 to 3.7 as medium; below that as low. FindRivals converts the overall pressure into a 0-100 attractiveness score.
Example 1: a restaurant in a busy neighbourhood
- Rivalry: high (dozens of outlets, similar menus, aggregator discounts).
- New entrants: high (a cloud kitchen can open in weeks).
- Substitutes: high (home cooking, ready meals).
- Buyer power: high (customers compare ratings and prices in one app).
- Supplier power: low (many produce suppliers).
This is a tough market. The practical response is to reduce buyer power through loyalty and a distinct experience that ratings alone do not capture, and to use scale in purchasing where possible.
Example 2: a niche B2B software product
- Rivalry: medium (a handful of specialised competitors).
- New entrants: medium (easy to build a basic version, hard to win trust).
- Substitutes: medium (spreadsheets and agencies).
- Buyer power: medium (buyers compare, but switching data is painful).
- Supplier power: low to medium (cloud and AI providers).
A more attractive market. The moat is switching cost: integrations, stored data, workflows and trust.
Example 3: an Amazon seller of commodity products
- Rivalry: very high. New entrants: very high. Buyer power: very high (the same page shows 20 options).
- Supplier power: medium. The marketplace itself acts like a powerful supplier of demand.
Here the lever is brand: a registered brand, better listings and reviews reduce the "commodity" effect.
What to do when a force is strong
| Strong force | Response |
|---|---|
| Rivalry | Differentiate on something customers value and rivals find hard to copy; avoid matching discounts |
| New entrants | Build reputation, reviews, relationships, data or exclusive supply that newcomers lack |
| Substitutes | Sell the outcome, price against the substitute, make switching back painful |
| Buyer power | Add switching costs: memberships, bundles, service, integrations |
| Supplier power | Diversify suppliers, sign longer contracts, redesign to use common inputs |
Common mistakes
- Scoring the whole economy instead of your market. Define the market first: customer, product and geography.
- Treating the result as fixed. Forces change when regulations, technology or platforms change.
- Forgetting platforms. Aggregators, app stores and marketplaces often act as both buyer and supplier power at once.
Use the Five Forces alongside market concentration and your SWOT: strong forces become threats, weak ones become opportunities.