Michael Porter described the strategic model of the five competitive forces analysis. The analysis is conducted on five factors, or so-called forces: customers, suppliers, existing competitors, new competitors, and substitute products. With the help of these structural units, it is possible to consider how a company, in the long run, can maintain its profitability and remain competitive. Porter’s theory was developed in 1979 but has remained popular to this day.
specifically for you
for only $16.05 $11/page
The methodology is suitable for start-up owners who want to assess possible risks in project development or those who are just choosing a business niche for investment. This analysis helps determine which factors can threaten the growth of the business, assess business processes and make rational decisions, and compare external threats and weaknesses of the company. As a result, the research provides a clear development strategy for several years ahead for each force.
Porter’s model applies to business valuation in any sector, but it must be adjusted for the rapidity and volatility of today’s industry. Valuation judgments are made based on ideal market conditions, which are not always the case. That is why evaluations can turn out to be insufficiently correct. Another intriguing point is that this methodology will not bring income at the current moment; it is more focused on the future. Porter’s theory is ineffective for making quick decisions in the here and now.
The theory is suitable for analysis in the business context associated with coffee shops: the entrepreneur can consider the force related to competitors, that is, the threat of invasion of new players. New players bring new production capacity, technology, and resources to the market, which can shock the industry, change consumer behavior, and set new standards of operation for existing players.
Another force is intra-industry competition: rivalry among existing competitors comes down to a desire to improve one’s market position, to win over consumers. Intense competition leads to price competition, increased promotion costs, improved product quality, and increased investment in new developments.
The strategy goes beyond the fundamental question of viability in business, whether one can generate income. The process asks the more difficult question of whether it is possible to make more profit than the competitors, how one can produce higher revenues, and maintain the advantage over time. Porter’s methodology is an essential tool in analytical marketing, allowing one to calculate their business strategy for years to come.