Introduction
Porter’s Five Forces are:
- Competitive rivalry — The strength and relevant of your competitors
- Supplier power — The reliance your product has on a given supplier
- Buyer power — The volume of buyers against the number of supplies
- Threat of substitution — The likelihood your customers find alternative solutions
- Threat of new entry — The potential for new competitors to enter your market
These concepts are an excellent structure to evaluate your product’s competitive edge and how it fares against other companies’ offerings. While they are typically applied from a business standpoint, their principles can be applied to any product of any type.
How do I apply Porter’s Five Forces?
As you run a competitive analysis for your product, you can apply the tool by asking questions such as the following for each of the forces.
Competitive Rivalry
- How many competitors does your product have? Who are they?
- Is your industry/market growing or declining? Growing markets generally have less competition while decline ones are more competitive.
- How do your competitors’ offerings compare to yours? Where are they similar, where are they different?
- What exit barriers exist that may make it difficult or costly to leave your industry/market?
- Does your industry and its products typically have higher fixed costs?
Supplier Power
- How many suppliers are available for your product or service?
- Is what your supplier provides unique?
- Is it costly for you to switch suppliers?
- Is it easy for your suppliers to move into the market themselves?
- Is it important for a supplier’s buyers to do well so that it can, too?
Buyer Power
- How many potential buyers is your product relevant for?
- How much of a financial commitment is your product to your buyers?
- How difficult and/or costly is it for your users to switch between your product and its alternatives?
- How sensitive are your customers to your product’s price?
- How educated are your customers? Savvy customers tend to know the competitive terrain well, thus can negotiate better prices.
Threat of Substitution
- What’s the cost of your product’s alternatives?
- How willing are your customers to seek a solution elsewhere?
- How similar are products in your market to each other?
- How accessible are alternatives to your product to your customers?
Threat of New Entry
- How do economies of scale affect you? Industries with where more production leads to lower costs generally have less of a threat of new competitors.
- Do you you and existing companies have strong brand identities or customer loyalty? Such things make it harder for new competitors to enter the market.
- Are there higher startup costs for the necessities to operate in your market?
- Do you and existing companies in your space control distribution channels?
- How might regulations raise barriers for new competitors?
- Is it costly for customers to switch from you or your existing competitors versus new competitors?
Conclusion
Porter’s Five Forces are an excellent strategy to pull together a comprehensive competitive analysis for your product. By researching and understanding the competitive landscape of your product, its competitors, and the customers within your industry, you put yourself in a better position to pivot, if not even double down, on your product’s strategy.