Five Forces, according to Porter, inform a company's positioning (and hence performance) in a given market situation: (1) Threat of New Entrants, (2) Customer Bargaining Power, (3) Supplier Bargaining Power, (4) Threat of Substitute Products or Services, and (5) Competitor Jockeying. The Threat of New Entrants is defined by six factors: (a) economies of scale, (b) product differentiation, (c) capital requirements, (d) cost disadvantages (independent of company size), (e) access to distribution channels, and (f) government policy. The Customer Bargaining Power and Supplier Bargaining Power are shaped by forces specific to a given market situation. For Customer Bargaining Power, customers can assume a high bargaining power by being able to force down prices, demand product higher quality or simply play competitors against one another (Porter). A buyer group can exercise influence over a company or a whole industry by being more concentrated or purchase in large volumes (Porter). For Supplier Bargaining Power, suppliers can be influential by being able to raise prices or reduce product quality in face of little, if any, major competitor (Porter). A supplier group can be of dominant market position if suppliers control majority of market share or offers highly differentiated products (Porter). The Threat of Substitute Products or Services is most challenging if a product and/or service is replaceable by another one or, in marketing parlance, has a low switch cost, i.e. customers can opt out of a specific product and/or service owing to existing alternatives or because costs of switching to another product and/or service are low (Porter). Finally, Competitor Jockeying can be intensified owing to existing numerous competitors or ones of comparatively equal power, slow industry growth, lack of product and/or service differentiation, high fixed costs or perishable products, or high exit barriers (Porter).
References
Porter, M. (1979). How competitive forces shape strategy. Harvard Business Review, March-April, 137-145. Retrieved January 16, 2016 from https://www.ebscohost.com
