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What is Porter's Five Forces

Also known as: five forces model, Porter's 5 forces

Definition

Porter's Five Forces is a model that shows who takes the profit in an industry: rivals, new entrants, substitutes, buyers and suppliers.

Why it matters

Many owners watch the business across the street, while the profit often leaks somewhere else.

Common mistakes

Treating the model as a one time checklist instead of asking which force squeezes the profit most right now.

Related terms

Worked exampleIllustration

Five forces around a fictional café

A fictional independent café on a busy street in a mid sized town. It bakes its own pastries, and three other cafés work in the same street.

  1. Rivalry

    Three other cafés in the same street chase the same morning customers.

    Strong

  2. New entrants

    A new café needs a fit out and a lease, and a chain is about to open at the corner.

    Moderate

  3. Substitutes

    Capsule coffee from the supermarket and the petrol station's espresso do the same job.

    Strong

  4. Buyers

    One customer is small, but every customer can walk 50 metres to a rival.

    Strong as a group

  5. Suppliers

    Two roasters supply the beans, and switching between them takes about a week.

    Moderate

The profit is squeezed by rivals and substitutes, not by the roaster. So the move is a reason to stay, such as a work corner or a loyalty card, not a cheaper supplier.

Source: The five forces as defined in Michael E. Porter, "The Five Competitive Forces That Shape Strategy", Harvard Business Review, January 2008

Illustration

Five forces press on the café's profit

Total pressure 19 of 25. Strongest now: Rivalry in the industry. The move answers the strongest force, not the one easiest to change.⁨New entrants⁩⁨Moderate⁩⁨Substitutes⁩⁨Strong⁩⁨Supplier⁩⁨power⁩⁨Moderate⁩⁨Buyer power⁩⁨Strong⁩⁨Rivalry in⁩⁨the industry⁩⁨Strong⁩⁨Profit left⁩

Total pressure 19 of 25. Strongest now: Rivalry in the industry. The move answers the strongest force, not the one easiest to change.

How hard each force presses

The positions 1 to 5 are a drawing rule, not a measurement. They open on the café of the worked example.

Four forces press from outside and the fifth, rivalry, sits in the middle. The stronger they press, the less profit is left.

Definition

Porter's Five Forces reads the structure of an industry, and through it how much profit the businesses in it can keep over time. Michael Porter set it out in Harvard Business Review in 1979 and in his book Competitive Strategy in 1980. The five pressures are the rivalry between existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers and the bargaining power of suppliers. In his 2008 update Porter treats government, technology and complementary products as factors that act through these five forces, not as a sixth force. The question the model answers is who takes the profit in your market, not only who your competitors are.

Why it matters

The profit goes to a customer who can walk to a rival, to a cheaper substitute, or to a supplier who sets the terms. The model shows which force squeezes your profit most, so the effort goes where it changes something. For a café, the biggest threat is often not the café next door but the capsule machine at home.

Directly related: Business Strategy, SWOT analysis, PESTEL.

Improvement tips

  • Name your industry first: a neighbourhood café competes in its street and its town, not with every café in the country.
  • Mark each force as strong, moderate or weak, and write one line of evidence next to each mark.
  • Start with the strongest force and ask what would make a customer stay, or make a supplier matter less.
  • Carry what you find into the opportunities and threats of your SWOT analysis.
  • Look again when the market moves, for example when a chain opens nearby or a new supplier appears.

Common mistakes

  • Drawing the industry too broadly or too narrowly, which leads to wrong conclusions.
  • Counting only direct competitors and missing substitutes that meet the same need in another way.
  • Adding government or technology as a sixth force, while Porter treats them as factors that change the five.

Related terms

StrategyBeginner

Business Strategy

Business strategy is the set of choices about which customers to serve, how to win them and what not to do, so money and time go where they count.

StrategyBeginner

SWOT analysis

SWOT analysis is a one-page review of a business: its strengths and weaknesses inside, and the opportunities and threats outside it.

StrategyIntermediate

PESTEL

PESTEL is a checklist of six outside forces that can change a business: political, economic, social, technological, environmental and legal.

StartupsIntermediate

Moat

A moat is a lasting advantage that stops competitors from copying a business and taking its customers, such as switching costs, a network effect or lower costs.

Quick check

In Porter's model, what does the strength of the five forces decide?

Choose an answer

Frequently asked questions

What is Porter's Five Forces?
A model for reading the market a business works in. It looks at five pressures on profit: the competitors you already have, new businesses that may open, substitutes that meet the same need, the bargaining power of customers and the bargaining power of suppliers.
What are the five forces, one by one?
Rivalry between existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers and the bargaining power of suppliers. Rivalry sits in the middle, and the other four press on it from outside.
Is the model just a list of my competitors?
No. Competitors are one force of five. The model asks who takes the profit in your market, and the answer can be a supplier who sets the terms or a customer who can leave at no cost.
What is the difference between competitors and substitutes?
Competitors sell the same thing you do, like two cafés in one street. Substitutes meet the same need in another way, like a capsule machine at home or an energy drink instead of coffee.
Are government and technology a sixth force?
Not in Porter's own account. In his 2008 article he treats government, technology and complementary products as factors that change the strength of the five forces, not as a force of their own. The wider outside world is what a PESTEL scan covers.
How do I use the five forces in a business that is already running?
Take one afternoon, write the five forces on one page, and mark each as strong, moderate or weak with one line of evidence. Then pick the strongest one and decide one move against it this month.
How can a small business weaken the power of its customers?
Give them a reason to stay that a rival does not offer, such as a service built around their routine or a loyalty card they actually use. The harder it is to get the same thing next door, the less a customer can push on price.
What can I do when a supplier holds the power?
Find a second supplier you could switch to, even if you stay with the first, and agree the main terms in writing. A supplier matters less once you have a real alternative.
Is using Porter's Five Forces complicated or risky?
Not complicated. The risk is filling it in as a list once and filing it: the forces change, and the point is which one squeezes your profit most.
How often should I look at the five forces again?
When something in your market moves: a chain opens nearby, a new substitute appears, or a supplier changes its terms. Between such changes, a look once a year is usually enough for a small business.
Do I need an MBA or an expert to use this model?
No. Answering plain questions about your customers, suppliers, rivals and substitutes is enough to start. A second view helps when you cannot decide which force is the strongest.
Who created the five forces model?
Michael Porter of Harvard Business School, in a 1979 Harvard Business Review article and in his book Competitive Strategy (1980). He returned to it in the same review in 2008.

Sources: Michael E. Porter, "How Competitive Forces Shape Strategy", Harvard Business Review, March-April 1979, vol. 57, no. 2, pp. 137-145, Michael E. Porter, Competitive Strategy, Free Press, 1980, Michael E. Porter, "The Five Competitive Forces That Shape Strategy", Harvard Business Review, January 2008

Last reviewed: 2026-09-25

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