Porter's Five Forces is a framework developed by economist Michael E. Porter to determine the profitability -- and attractiveness -- of a market or market segment.Content Continues Below
Published in 1979 when Porter was an associate professor at Harvard Business School, Porter's framework maintains that the attractiveness of a market segment is determined by five competitive forces:
- Threat of new entrants - how easy is it for a new competitor to enter the market?
- Rivalry among existing competitors - how many competitors offer a similar product at a similar price?
- Threat of substitute products or services - what is the likelihood a customer will switch to a similar product?
- Power of buyers - how easy is it for buyers to drive prices down?
- Power of suppliers - how easy it is for suppliers to drive prices up?
The Five Forces analysis was developed by Porter in reaction to the SWOT (strengths, weaknesses, opportunities, and threats) analysis, a popular framework for identifying and analyzing the internal and external factors that can have an impact on the viability of a project, product, place or person. Porter believed his framework, drawing from industrial organization economics theory, was more rigorous.
In 2008, Porter updated and extended his namesake work in the Harvard Business Review, reinforcing the idea that the underlying drivers of profitability for all industries are shaped by the five forces in his framework.