Common Beginner Mistakes (and How to Avoid Them)
When first applying Porter’s Five Forces, many learners assume that identifying competition is simply about naming rival companies. But this overlooks a deeper truth: competition exists beyond the obvious players. A beginner might focus only on direct competitors in the same industry, missing critical forces like substitute products or shifting buyer power. That’s where the real missteps happen.
I’ve reviewed hundreds of student analyses, and nearly every one contains at least one fundamental error in interpretation. These aren’t just minor oversights—they distort the entire strategic picture. The key? Recognizing that each force operates at a structural level, not just a surface one.
Understanding these common pitfalls isn’t about avoiding mistakes—it’s about building a mindset that questions assumptions. This chapter gives you a clear roadmap to correct them before they become habits. You’ll learn how to see competition more broadly, interpret forces accurately, and apply the model with confidence.
Top 5 Beginner Strategy Pitfalls
1. Confusing Direct and Indirect Competition
It’s tempting to think competition only applies to businesses offering the same product. But in reality, a coffee shop competes not just with other cafes, but also with bottled water, energy drinks, and even mobile apps like Starbucks’ digital ordering that reduce the need for physical visitation.
Beginners often overlook substitutes because they appear unrelated. That’s a five forces misinterpretation. Ask: What alternatives meet the same customer need? If your product is “quick fuel,” then breakfast sandwiches, protein bars, or even a 10-minute walk to work might be relevant.
- Think beyond the product category.
- Consider how digital platforms can substitute physical services.
- Map customer needs first—then identify alternatives.
2. Treating Supplier Power as a One-Off
Many students see supplier power as static. But it changes with market dynamics. A small bakery relies on flour and sugar suppliers, but if flour prices spike due to drought, its margin shrinks—especially if suppliers are few and dominant.
Beginner strategy pitfalls often arise when learners fail to assess supplier concentration, switching costs, or backward integration. Ask: Can buyers switch suppliers easily? Is this supplier’s product unique? Can the business produce it in-house?
Remember: supplier power isn’t just about cost—it’s about control. A single supplier with high switching costs can become a bottleneck.
3. Ignoring the Threat of New Entrants
Students frequently rate new entrants as low risk simply because a market seems saturated. But barriers to entry aren’t always financial. Brand loyalty, distribution networks, or regulatory hurdles can be just as effective.
Consider the meal kit delivery market. It requires capital, logistics, and branding. But the real threat comes not from big players like HelloFresh—but from a local chef who starts offering custom boxes with fresh ingredients and delivery. Their low overhead and niche positioning can challenge established firms.
- Barriers aren’t just money—they include trust, relationships, and speed.
- Look for small, agile entrants with unique value propositions.
- Assess ease of entry beyond just capital requirements.
4. Overlooking Buyer Power in B2B Markets
Beginners often assume buyer power is weak when selling to large corporations. But if a company is a large client with multiple suppliers, it can negotiate hard and switch easily—especially if its purchase volume is high.
For example, a software firm providing tools to schools may face little pressure from individual teachers, but the district-wide procurement office wields significant power. They can demand features, lower pricing, or better support.
Ask: Does the buyer have many alternatives? Can it switch suppliers without cost? Does it buy in bulk?
5. Failing to Link Forces to Profitability
One of the most common five forces misinterpretation errors is analyzing forces in isolation. Each force doesn’t exist alone—it interacts with others.
For example, if buyer power is high and new entrants are easy, competition intensifies. But if supplier power is also high, the business gets squeezed from both sides. The real question isn’t “what are the forces?” but “what’s the combined impact on profits?”
Use this decision tree:
- Which forces are strongest?
- Do strong forces interact to amplify risk?
- Can any force be leveraged as an advantage?
Quick Reference: Five Forces Misinterpretation Checklist
| Mistake | Correct Approach | Example |
|---|---|---|
| Only counting direct competitors | Include substitute products and new entrants | Netflix vs. YouTube, streaming vs. cable |
| Assuming supplier power is low if prices are stable | Assess supplier concentration and switching costs | Pharmaceuticals: API suppliers with patents |
| Believing strong brand = no threat of new entrants | Consider low-cost, agile entrants | Uber vs. traditional taxis |
| Ignoring buyer power in B2B | Assess buyer’s ability to switch and negotiate | Large retailer demanding 30% margin reduction |
| Rating all forces equally | Rank by impact on competitive intensity | High rivalry + high buyer power = intense pressure |
How to Fix Your Analysis: A Daily Habit
After each analysis, pause and ask three questions:
- Did I consider both direct and indirect competition?
- Could any force be reversed—like turning supplier power into a strength?
- What does this mean for profitability, not just competition?
These questions train your judgment. Over time, you’ll stop seeing forces as isolated elements and start seeing them as interconnected forces shaping market dynamics.
When I first taught the model, I used to see the same mistake repeated: students listed the five forces like a grocery list. But the breakthrough came when I started asking: “What does this mean for the business?” That shift from recognition to interpretation is where true understanding begins.
Frequently Asked Questions
Why do beginners struggle with the threat of substitutes?
Because substitutes aren’t always obvious. They often come from outside the industry. A fast-food chain might not see a salad bar as competition—until customers realize they fulfill the same hunger need. The key is to think in terms of customer value, not product similarity.
Can buyer power be high even in a niche market?
Absolutely. If a buyer has unique purchasing power—like a major retailer with exclusive distribution rights—it can demand significant concessions. Size, volume, and access to channels matter more than the market’s overall size.
How do I know if supplier power is really a threat?
Look for signs: few suppliers, high switching costs, lack of alternatives, or suppliers with strong bargaining power (e.g., patented materials). If your business relies on a single supplier with no backup, that’s a red flag.
Is it okay to rate forces as moderate if I’m unsure?
Yes—but only with justification. Avoid defaulting to “moderate” without analysis. If you’re unsure, explore: who are the stakeholders? What evidence supports one view over another? Use phrases like “limited data, but trends suggest…” to stay honest and transparent.
Can a force be strong in one context but weak in another?
Yes. Consider the threat of new entrants. In a regulated industry like pharmaceuticals, it’s low. In mobile apps, it’s high. The same force behaves differently based on industry rules and entry barriers.
Why should I avoid thinking of Five Forces as a checklist?
Because it’s not a checklist—it’s a framework for understanding competitive forces. Relying on it as a mechanical tool leads to five forces misinterpretation. Instead, use it to ask deeper questions: What’s changing? Who benefits? What’s the risk?
