## Porter's Five Forces Model — Overview

Michael Porter's Five Forces Model is a systematic framework for diagnosing significant competitive pressures in a market and assessing the strength of each. It helps managers understand the composite nature of competition — no single force acts in isolation.

### The Five Forces

#	Force	Core Question
1	Rivalry Among Existing Competitors	How intense is the jockeying for buyer patronage among current players?
2	Threat of New Entrants	How easy is it for outside firms to enter and compete?
3	Threat of Substitutes	Can buyers switch to products from other industries that serve the same need?
4	Bargaining Power of Suppliers	How much leverage do input providers have over the industry?
5	Bargaining Power of Buyers	How much leverage do customers have to demand lower prices or better service?

### Key Principle

The state of competition in an industry is a composite of all five forces operating together. A firm's profitability is determined by how favourable or unfavourable each force is.

### Why Use This Model?

Avoids information overload by focusing attention on what structurally matters
Reveals root causes of profitability (not just symptoms)
Guides strategy formulation — a firm can choose moves that shift the forces in its favour

### Exam Approach

In scenario questions, always identify which force is being tested first, then explain the force, and finally apply it to the scenario with specific reasoning.

Worked example

### Example 1

Q15 — Overview of All Five Forces:

Scenario: Explain Porter's five forces model as to how businesses can deal with the competition.

Answer Framework:

Competition is neither coincidence nor bad luck — all organisations face it, and markets benefit from it through better products at lower prices.
Porter's model diagnoses competitive pressures in five areas:

1. Market manoeuvring and jockeying among rival sellers

2. Threat of new entrants into the market

3. Attempts by firms in other industries to win buyers over to substitute products

4. Supplier bargaining power and supplier-seller collaboration

5. Buyer bargaining power and seller-buyer collaboration

The model helps managers avoid excessive information gathering by focusing on structurally significant forces.

⚠️ Common exam mistakes

Treating the five forces as independent rather than composite — exam scenarios test whether you see the combined effect on industry attractiveness.
Confusing 'competitive rivalry' (among existing players) with 'threat of new entrants' (firms not yet in the market).
Assuming Porter's model is only for large companies — it applies to any industry or firm size.
Answering only the force explicitly named in the question without acknowledging that other forces also shape the competitive picture.

Reference:

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