Getting to Know the Five Forces Framework

You’re trying to figure out whether a new café in your neighborhood is likely to survive. You see it’s offering a similar menu to two others nearby. At first glance, it seems like a simple competition of prices and quality. But you’re not just observing—your mind is already scanning for patterns. That’s where Porter’s Five Forces comes in.

Most beginners jump straight into listing competitors or pricing. But that misses something deeper: the *structural forces* shaping competition. You might think competition is just about how many rivals there are. But the real story lies in the five forces that determine how hard it is to earn profits in any market.

Let me share something I’ve seen time and again: even when a business looks promising on paper, it often fails not because of poor service, but because one or more forces make the market too competitive to sustain. My advice? Don’t start with your gut. Start with structure.

In this chapter, you’ll learn how to break down any industry—online, retail, even local services—using Porter’s Five Forces framework. You’ll get clear definitions, relatable analogies, and guidance on how to analyze each force step by step. By the end, you’ll see not just *how* businesses compete, but *why* some win and others don’t.

What Is Porter’s Five Forces Framework?

Developed by Harvard professor Michael Porter in the 1970s, the Five Forces model is a strategic tool that helps you assess the competitive intensity and profitability of any market.

It’s not about trends, fads, or short-term promotions. It’s about identifying the *underlying structure* of competition—forces that shape how much money a business can reasonably expect to make.

You don’t need to be a data scientist or economist. This framework is built for beginners, students, and early professionals who want to think like a strategist. With just a few simple questions, you can uncover what’s really going on behind the scenes.

The Five Forces at a Glance

• 1. Competitive Rivalry – How intense is the battle between existing competitors?
• 2. Threat of New Entrants – How easy is it for new competitors to enter the market?
• 3. Bargaining Power of Buyers – How much control do customers have over price and quality?
• 4. Bargaining Power of Suppliers – How much power do suppliers have over costs and quality?
• 5. Threat of Substitutes – Are there alternative products or services that meet the same need?

Each force adds a lens through which to view competition. Together, they give you a complete picture of market dynamics.

Understanding Market Competition: A Real-World Example

Let’s use a coffee shop in a busy downtown area. You might think it’s just about beans, baristas, and customer loyalty. But the Five Forces reveal deeper truths.

First, take competitive rivalry. There are three other cafés within a block. All offer lattes, pastries, and free Wi-Fi. Price wars are common. This means rivalry is high—pricing pressure is constant.

Next, new entrants. The space is small, rent is high, and permits are strict. This creates a barrier. So the threat of new entrants is low. But if rents drop, that could change.

Now, buyer power. Customers have many choices. They can walk into any shop or switch to a chain like Starbucks. They’re sensitive to price and quality. So buyer power is high.

Supplier power is moderate. The café sources beans from one regional roaster. If that roaster raises prices, the café has to absorb it or pass it on—possibly losing customers. But there are alternatives. So supplier power isn’t extreme.

Finally, substitutes. The customer’s need is “a caffeine break.” But they could go for a smoothie, energy drink, or even just water. These aren’t direct competitors but they serve the same function. So substitute threat is real and growing.

What this tells us: even with strong branding and good quality, profits are at risk because of high rivalry and buyer power. A drop in foot traffic could push the café into the red.

Step-by-Step: How to Apply the Five Forces Model

Here’s how to use the model in practice. You don’t need software. Just a notebook, a pen, and a curious mind.

1. Choose your industry – Start with something familiar: fast food, smartphones, delivery services.
2. Identify the key players – Who are the main competitors? Who supplies materials? Who are the buyers?
3. Ask each force-specific question – Use the checklist below to guide your thinking.
4. Rate each force – Use a simple scale: Low, Medium, High (or 1–5).
5. Summarize your findings – What’s the overall competitive intensity? Is the market profitable?

Five Forces Analysis Checklist

Force	Key Question	What to Look For
Competitive Rivalry	How many competitors are there? Are prices competitive?	High number of rivals, frequent promotions, low customer loyalty.
Threat of New Entrants	Are barriers to entry high or low?	High startup cost, strict regulations, strong brand loyalty.
Buyer Power	Can buyers switch easily? Do they buy in bulk?	Few large buyers, high purchase volume, price sensitivity.
Supplier Power	Are there few suppliers? Is the input unique?	Only one supplier, unique raw materials, long-term contracts.
Threat of Substitutes	Are there alternatives that solve the same need?	Same function, lower cost, better convenience.

Use this table as a guide during your analysis. It’s not a rigid template—it’s a thinking tool.

Why This Framework Works for Beginners

One of the biggest mistakes I see is treating the Five Forces as a list to check off. But the real value comes from *asking the right questions* and *connecting them to real behavior*.

For example, when I first taught this to a group of students, one asked: “But what if the coffee shop doesn’t sell anything? Is that still relevant?”

That’s the power of the model: it doesn’t care if the business is open—it looks at the *structure* of competition. Even a startup has to face these forces. The model adapts.

It’s also incredibly flexible. Use it for a lemonade stand, a tech startup, or a local gym. The principles remain the same. You’re not memorizing—they’re learning to *see* like a strategist.

Common Misconceptions About the Five Forces

Let’s clear up a few myths:

• Myth 1: The Five Forces is only for large corporations.
  No. Any business, from a freelancer to a nonprofit, can use it to assess competition and opportunities.
• Myth 2: High rivalry always means bad news.
  Not necessarily. High rivalry can signal a healthy, growing market. But it also means lower profits unless you differentiate.
• Myth 3: If there are no new entrants, the market is safe.
  No—low threat of new entrants can mean entrenched players dominate. But if barriers fall, disruption can happen fast.

Remember: the goal is not to label a market as “good” or “bad.” It’s to understand the *why* behind competition. That’s where real insight begins.

Frequently Asked Questions

What’s the best way to start applying Porter’s Five Forces?

Begin with a business you interact with daily—your local grocery store, a delivery app, or a gym. Ask the five key questions. Write down your answers in plain language. That’s your first real analysis.

How do I know if a force is high or low?

Use real data where possible. But even without numbers, ask: “Is it easy or hard for customers to switch?” or “Are there many suppliers?” If yes, the power is likely high. If not, it’s low. Practice makes judgment sharper.

Can the Five Forces model be used for non-profit organizations?

Absolutely. A charity, school, or community center faces competition too—just in the form of other services addressing the same need. The forces still apply.

Do I need to use diagrams?

No. You can analyze the forces in writing. Diagrams are helpful for presentations or team discussions, but not required for understanding.

Is Porter’s Five Forces outdated?

Not at all. While business models evolve, the structural forces that shape competition remain. The model is timeless because it focuses on *why* markets behave the way they do—not trends.

How long should a Five Forces analysis take?

For a beginner, 20–30 minutes is enough to get a solid understanding. The goal isn’t speed—it’s clarity. You’ll improve with practice.