What is Porter's Five Forces Model and How to Use It?

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Are you thinking about starting your own business or do you already have one and would like to improve its performance? Regardless of your industry, learning about the competitive forces and attractiveness of your industry will help you build a stable and profitable business. You can use Porter’s Five Forces model to help you do this. Read on to learn more.

Porter's Five Forces – Index:
Understanding Porter's Five Forces
Porter's Five Forces – Examples
Pros and Cons of Porter's Five Forces Model
Understanding Porter's Five Forces
This is a method to determine the profitability and armenia whatsapp number database of the selected industry. It will also help you gather information about your competition and the threats and opportunities associated with it.

Porter's five forces include:

Potential for new entrants in the industry
Threat of substitute products
Competition in the industry
Customer power
Supplier power
Porter's Five Forces
Potential for new entrants in the industry
This determines the barrier to entry into the market and maintaining a good position in it. Starting a business involves investing financial capital, having patents or specialized skills. An additional difficulty may be the already existing and diverse range of products and services – it will be much harder for you to stand out from the competition.

Threat of substitute products
This refers to the ease with which you can find a substitute offering for yours. The more products or services of this type you can find, the less likely you are to gain a strong position in the industry. The following factors can influence the degree of this threat:

Uniqueness, innovation of the product/service, as they are more difficult to replace,
A large number of substitutes already on the market,
A high cost of improving or changing the product/service.
Competition in the industry
Competitiveness is an important element that significantly affects the overall market environment. This force is influenced by the following factors:

Market entry barriers – the need to invest a lot of money or have an innovative offering or a patent,
A large number of competitors with a similar strategic profile to yours,
Customer loyalty – satisfied, long-time customers may be reluctant to change their habits in favor of a new startup.
If you would like to learn about the strengths and weaknesses of your competitors and how to use this knowledge in your management strategy – read this article .

Customer power
It depends on their ability to exert pressure and change prices. The incentives that can shape the relationship between buyers and sellers are:

Product/service differentiation – if your offering does not differ significantly from your competitors’ offering, consumers tend to choose products that are cheaper,
Switching costs – the lower these costs, the greater the bargaining power of buyers,
Their quantity or tendency to group together – strong groups gain an advantage, as they can decide on prices (an unsatisfactory offer can lead to abandonment of the purchase and, as a result, worsen the company's situation).