Porter’s Five Forces Model

Porter’s Five Forces Model is one of the most popular frameworks in management. This framework is widely used across management disciplines specially so in case of Strategy and Marketing. . This is one model that has brought strategic management in the heart of management agenda. Porter’s Five Forces Model helps analyze competitive scenario in an industry. This framework helps determine industry profitability and can be used as one of the inputs while deciding to enter an industry. This famous framework was contributed by Michael E. Porter. The basic framework is as shown in the diagram below.

So, the five forces that determine the industry profitability as per this framework are: Threat of New Entry, Buyer Power, Supplier Power, Threat of Substitution and Competitive Rivalry. There are various parameters which can be used to determine the nature of these forces. Each of the force is classified as low, medium or high depending on the nature of those parameters. The parameters used to measure nature of the forces are described in below diagram.
Ideal scenario to enter an industry is: Entry Barrier=High, Buyer Power=Low, Supplier Power=Low, Threat of Substitution=Low and Competitive Rivalry=Low to medium. Current players try to build high entry barriers to prohibit new comers from entering. Examples of high entry barrier – strong distribution channel of ITC in the Cigarette industry. Example of low Supplier Power – HUL getting long credit periods from suppliers.
The best way to understand any theory is to use an example. So, we have done a basic analysis of Indian Cigarette Industry using Porter’s Five Forces Model. Please find the analysis in presentation format below.

In case you have anything more to share about this framework or have any queries please leave a comment. We would love to hear from you.

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About Dr. Angshu

Dr. Angshu is the founder and owner of TNMG: The Next Marketing Guru. He is a PhD and MBA in Marketing from XLRI Jamshedpur. Currently he is leading large scale marketing, research & analytics projects as part of Strategy & Insights team at Star India, India’s no. 1 Media & Entertainment company. In his last job, he was heading Consumer Insights function for Spice Group. Earlier he has worked for Wipro Technologies and managed IT projects for marketing division of a Fortune 100 company. Dr. Angshu is a Visiting Professor at XLRI and IMT Ghaziabad. He has published multiple research papers on marketing, social media and luxury consumption. Recently he has published a book titled “Influence 2.0: How Social Media WOM Influences You" published by reputed international publishing house Lambert Publishing. Other than work and academics, he is a social media addict, big foodie and amateur pianist. You can contact him by: Gmail | Facebook | LinkedIn

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