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Porter's Five Forces

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What are Porter's Five Forces?

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Porter's Five Forces definition

Porter's Five Forces is a framework developed to identify an industry's competitive landscape. It achieves this by focusing on five "forces" that provide an idea of how competitive certain areas of the industry are. Business leaders can use this as a way to determine if and how to penetrate a particular sector.

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How to use Porter's Five Forces in product management

You can use Porter's Five Forces in product management to inform your product strategy. It can help you identify your competitive landscape, consider your position among your competitors, and identify your USPs and product viability. 

In other words, this tool will help your business decide if, when, and how to invest in a particular market. It's generally not a good idea to jump into a particular market without experience. Porter's Five Forces can help you proceed with more information. 

How Porter's five forces work in product management

Threat of new entrants and product management

This force is designed to help you identify how easy it is for new players to enter a specific market. You might define this force by asking questions like:

  • How complicated is the product or service?

  • What budget would be required to enter the market?

  • What are the barriers to entry?

  • Have there been new entrants recently? How did they do in the market once they entered?

Answering these questions will not only tell you if you're ready to enter the market but also give you an idea of how readily others might join you. 

Bargaining power of buyers and product management

The second force considers customers' purchasing power in a particular market. You might evaluate this force by asking questions like:

  • How many other options do customers in this market have? What will it cost them to switch?

  • Are customers well-educated about the market?

  • Are they price sensitive?

  • How loyal are they to your brand?

This will tell you whether or not there is a sizable enough market for your business and whether or not it will be a customer-controlled or producer-controlled marketplace. 

Bargaining power of suppliers and product management

For businesses that offer a physical product, the third force can help you identify your suppliers' bargaining power. Similar to the second force, this helps you identify how much negotiating sway your business will have. 

The threat of substitutes and product management

In most markets are already products that solve the problem your business is trying to solve. This force helps you evaluate different products that customers could potentially substitute for yours. Evaluate this force by asking questions like:

  • Do substitute products already exist?

  • What is brand loyalty like in the market? 

  • How does your product compete with substitute products?

Industry rivalry and product management

The last force is a holistic overview of competitors in a particular sector. It asks questions such as:

  • How many direct competitors do you have?

  • How is the industry expected to grow?

  • Have you lost competitors? Why did they fail?

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General FAQ

What are Porter's Five Forces?
Porter's Five Forces is a metric for determining how competitive a particular sector is. It bases this metric on five key points, known as the five forces.
Who came up with the five forces?
Porter's Five Forces were created by Michael Porter, a professor at Harvard Business School.
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