Frequent Pitfalls and How to Avoid Them
Many analysts rush through Porter’s Five Forces without recognizing that the model is not a checklist but a diagnostic lens. The real danger lies not in misapplying the forces, but in assuming they operate in isolation. I’ve seen teams declare a market “high threat” based on one force while ignoring how the others interact. This leads to flawed conclusions and misguided strategy.
When I first began advising startups, I assumed a strong threat of new entrants meant inevitable disruption. But later, after reviewing actual market data, I realized that even with low barriers to entry, entrenched customer loyalty and switching costs could neutralize that threat. That moment taught me: the model demands context, evidence, and continuous calibration.
You’ll gain clarity on the most frequent errors made by practitioners, how to spot them, and what to do instead. By the end, you’ll be able to audit your own analysis with confidence, grounded in real-world experience and sound methodological rigor.
Top 5 Common Mistakes in Porter’s Five Forces
1. Treating the Five Forces as Independent
One of the most persistent errors is analyzing each force in isolation. The model’s power lies in its interconnectedness. For example, high buyer power often stems from low switching costs, which in turn reduces the threat of substitution. Ignoring that feedback loop leads to inconsistent conclusions.
Consider a cloud service provider. Buyers may be concentrated (high buyer power), but if their contracts are locked in by long-term commitments, the threat of substitution is low. If you only assess buyer power without factoring in switching costs, you overstate the pressure.
Always ask: How does a change in one force affect the others? Use a system-thinking mindset to map out dependencies.
2. Overreliance on Qualitative Ratings Without Evidence
Too many teams assign “high,” “medium,” or “low” to each force based on gut feel. This invites bias and makes the model look like a popularity contest. I once reviewed a Five Forces analysis in a healthcare tech firm where all forces were labeled “high” — despite the market being dominated by two players with entrenched contracts.
The fix is simple: anchor every assessment in data. Ask: What evidence supports this rating? Is there market share data? Customer churn metrics? Supplier concentration indices? If not, reevaluate.
Use a structured scoring system with defined thresholds (e.g., market concentration ratio above 60% = high supplier power).
3. Confusing the Threat of Substitution with Competitive Rivalry
Many mistake a new product category (like telehealth apps) for direct competition with hospitals. But substitution threat is about functional alternatives, not just new entrants. A hospital might be under pressure from telehealth, but not because of rivalry — because patients now have a viable alternative.
This mistake leads to misdirected actions. If you think the threat is rivalry, you’ll invest in differentiation. If it’s substitution, you need to innovate faster or lock in customers through ecosystems.
Ask: Is the alternative meeting the same core need? Is the switch cost low? If yes, substitution threat is high.
4. Ignoring Industry Evolution and Time Horizons
Competitive structure isn’t static. A market may appear stable today but face massive disruption tomorrow due to technological shifts. I worked with a logistics company that rated the threat of new entrants as “low” based on capital barriers. But three years later, drone delivery startups entered the market with minimal infrastructure.
Always ask: What’s changing in the next 3–5 years? Are new technologies emerging? Are regulations shifting? Use scenario planning to assess time-sensitive vulnerabilities.
Apply the model not just on a snapshot, but across multiple future states.
5. Assuming the Framework Is Always the Right Tool
Porter’s Five Forces excels in assessing industry structure — but not every strategic question requires it. I’ve seen teams apply it to internal innovation projects, where the real issue is resource allocation, not market competition.
Use the framework only when analyzing: market entry, expansion, or competitive positioning. For internal operations, use tools like Value Chain Analysis or Business Model Canvas.
Mistake: Using Five Forces to evaluate a new product launch. Fix: Use it to assess the *market* the product will enter, then use other tools for the product’s internal design and rollout.
How to Spot and Fix Framework Misuse
When you or your team are applying the model, ask these diagnostic questions:
- Are all five forces assessed using consistent, evidence-based criteria?
- Do the ratings make sense in light of structural interdependencies?
- Is the time horizon relevant to the strategic decision at hand?
- Could the same question be answered more directly with a different tool?
- Have we validated assumptions with real data or expert interviews?
Use this checklist to audit your own work before sharing it with leadership.
Comparison: Correct vs. Common Misuse of Five Forces
| Element | Correct Application | Common Mistake |
|---|---|---|
| Focus | Industry structure and profit potential | Internal process inefficiencies |
| Time Horizon | 5-year market outlook with scenario planning | Static snapshot of current conditions |
| Interdependence | Assesses feedback loops (e.g., high buyer power → lower prices → reduced supplier investment) | Assesses forces in isolation |
| Data Use | Supports all ratings with market share, customer churn, contract terms | Relies on intuition or generic labels |
Practical Steps to Prevent Pitfalls
- Start with the question: Are you analyzing market entry, expansion, or competitive positioning? If not, reconsider the framework.
- Map interdependencies: Draw lines between forces showing how one influences another. For example, high buyer power → drives substitution threat.
- Define evidence thresholds: Set clear criteria for “high,” “medium,” “low” — e.g., “high supplier power” = 3+ suppliers control >70% of supply.
- Validate with interviews: Talk to customers, suppliers, and industry experts to verify your assumptions.
- Revisit quarterly: Reassess forces as market conditions evolve.
Frequently Asked Questions
Why does my Five Forces analysis feel too generic?
Generic insights often stem from vague assumptions. To deepen your analysis, replace broad labels like “high rivalry” with “intense rivalry due to 4 dominant players with similar pricing and low customer loyalty.” Specificity reveals real strategic levers.
Can the Five Forces model be used for internal strategy?
No — the model is designed for external competitive positioning. For internal operations, use Value Chain Analysis or SWOT. Using Five Forces for internal decisions leads to framework misuse and misleading conclusions.
How do I handle markets with no clear data?
In emerging or informal markets, rely on expert interviews, customer surveys, and analogies to similar industries. Be explicit about assumptions. For example, “Based on telecom sector trends, supplier concentration is likely high.” Anchor all claims in observable patterns.
Is it okay to skip a force if it doesn’t apply?
No. Even forces that seem irrelevant require active justification. Say: “Threat of new entrants is low due to high capital requirements and regulatory licensing.” Skipping a force leaves your analysis incomplete and open to scrutiny.
How do I present Five Forces to non-experts?
Use simple visuals: a 5-point diagram with icons (e.g., a sword for rivalry, a buyer’s cart). Replace terms like “bargaining power” with “buyers can push prices down.” Keep the explanation focused on what it means for profitability — not the academic details.
Should I use quantitative scoring?
Yes — but only if you have a consistent method. Assign scores (1–5) per force based on data, then weight them by relevance to your decision. For example, in a market entry, threat of new entrants and buyer power may carry higher weight. This prevents subjectivity from dominating.
