Industry Analysis: the Five Forces
Purdue extension
EC-722
Industry Analysis: The Five Forces
Cole Ehmke, Joan Fulton, and Jay Akridge Department of Agricultural Economics Kathleen Erickson, Erickson Communications Sally Linton Department of Food Science
Overview
Assessing Your Marketplace
The economic structure of an industry is not an accident. Its complexities are the result of long-term social trends and economic forces. But its effects on you as a business manager are immediate because it determines the competitive rules and strategies you are likely to use. Learning about that structure will provide essential insight for your business strategy. Michael Porter has identified five forces that are widely used to assess the structure of any industry. Porter’s five forces are the: • Bargaining power of suppliers, • Bargaining power of buyers, • Threat of new entrants, • Threat of substitutes, and • Rivalry among competitors. Together, the strength of the five forces determines the profit potential in an industry by influencing the prices, costs, and required investments of businesses—the elements of return on investment. Stronger forces are associated with a more challenging business environment. To identify the important structural features of your industry via the five forces, you conduct an industry analysis that answers the question, “What are the key factors for competitive success?”
Audience: Business managers seeking to assess the nature of their marketplace Content: Presents five forces that influence the profitability of an industry Outcome: Reader should understand the forces and be able to counter them with appropriate tactics
Using This Publication
This publication describes five forces that influence an industry. The publication includes a set of application questions that will help you evaluate the structure of the industry you are in or are considering entering. The more you understand about the strength of each force, the better able you will be to
EC-722
Industry Analysis: The Five Forces
Cole Ehmke, Joan Fulton, and Jay Akridge Department of Agricultural Economics Kathleen Erickson, Erickson Communications Sally Linton Department of Food Science
Overview
Assessing Your Marketplace
The economic structure of an industry is not an accident. Its complexities are the result of long-term social trends and economic forces. But its effects on you as a business manager are immediate because it determines the competitive rules and strategies you are likely to use. Learning about that structure will provide essential insight for your business strategy. Michael Porter has identified five forces that are widely used to assess the structure of any industry. Porter’s five forces are the: • Bargaining power of suppliers, • Bargaining power of buyers, • Threat of new entrants, • Threat of substitutes, and • Rivalry among competitors. Together, the strength of the five forces determines the profit potential in an industry by influencing the prices, costs, and required investments of businesses—the elements of return on investment. Stronger forces are associated with a more challenging business environment. To identify the important structural features of your industry via the five forces, you conduct an industry analysis that answers the question, “What are the key factors for competitive success?”
Audience: Business managers seeking to assess the nature of their marketplace Content: Presents five forces that influence the profitability of an industry Outcome: Reader should understand the forces and be able to counter them with appropriate tactics
Using This Publication
This publication describes five forces that influence an industry. The publication includes a set of application questions that will help you evaluate the structure of the industry you are in or are considering entering. The more you understand about the strength of each force, the better able you will be to