Devised by Harvard Business School professor Michael Porter in the late 1970s, the Five Forces model has become a fundamental tool for understanding industry competition and profitability. The framework examines five key forces. By analyzing these forces together, you can better understand what drives competition in your industry and where to focus your strategic efforts:
Threat of new entrants
Could a startup disrupt your market tomorrow? This force examines the barriers that either protect established companies or leave the door open for new competition. Capital requirements, brand loyalty, and government regulations can influence a new company's ability to gain market share in your industry.
Running a risk assessment can help you evaluate these factors and prepare for new potential competitors.
Bargaining power of suppliers
A business' suppliers can impact its pricing strategy and bottom line. Look at how many suppliers operate in your industry, their unique products or services, and their ability to set prices and terms.
When you heavily depend on a few key suppliers, they have more leverage to influence your costs and quality standards.
Bargaining power of buyers
How much power do your customers hold? This force examines factors like the concentration of your customer base, what it costs them to switch to competitors, and what alternatives they have available.
Buyers can demand better prices and terms when they have many options and low switching costs.
Threat of substitute products or services
Sometimes, your biggest threat isn't a direct competitor — it's an entirely different solution to the same problem. Think about alternatives that could replace your product or service. How easily can customers switch? What makes your offering unique? Understanding potential substitutes helps you differentiate your business.
Industry rivalry
This force examines the competitive intensity within your industry. It considers factors like the number of competitors, market growth rate, and difficulty exiting the industry.
High rivalry often means more aggressive pricing and marketing, while low rivalry can lead to more stable profits.
What is Porter's Five Forces template?
Porter's Five Forces template provides an easy-to-follow way to visualize and analyze competitive forces. This roadmap helps you understand the complex dynamics shaping your industry and breaks down abstract market forces into concrete elements you can evaluate and act on.
Why use Porter's Five Forces template?
Creating a template for Porter's Five Forces strengthens your project management approach and eliminates the guesswork in competitive analysis. Instead of relying on hunches, you get a systematic approach to understanding market forces and their impact on your business, which can inform decision-making. Porter's Five Forces template is a tool for project planning and building a strong competitive strategy.
Example of Porter's Five Forces
Let's see how Porter's Five Forces work in practice by analyzing a digital marketing agency. This example will show you how each force affects an agency's competitive position and profitability:
Threat of new entrants: Strong: The digital marketing industry has relatively low barriers to entry. With remote work now common, new agencies can start with minimal overhead. While enterprise clients might prefer established agencies, smaller businesses are often willing to work with newcomers who demonstrate expertise. Established agencies must constantly innovate and showcase proven results to maintain their position.
Supplier power: Weak to Moderate: Marketing agencies rely primarily on human talent and digital tools. While premium talent can command high salaries, a large pool of marketing professionals is available. Digital tools and platforms (analytics, automation, design software) are typically standardized, with multiple options available. The main challenge is retaining top talent who might be tempted to start their own agencies or work for the competition.
Buyer power: Strong: Clients have many options and can easily compare agencies online. With low switching costs and increased transparency around pricing and results, clients can demand competitive rates and proven ROI. Agencies must differentiate through specialization, industry expertise, or unique methodologies. However, long-term contracts and deep integration with client teams can reduce this power.
Substitute threats: Strong: Companies have multiple alternatives to hiring an agency — building in-house teams, using freelance marketplaces, subscribing to DIY marketing platforms, or leveraging AI-powered marketing tools. More and more platforms are becoming user-friendly, and various tools make it easier for companies to handle some marketing functions internally. Agencies need to offer strategic value that these alternatives can't match.
Industry rivalry: Strong: Competition is intense among agencies of all sizes. Large agencies compete for enterprise clients, while boutique firms target specific niches or industries. Agencies compete on expertise, pricing, industry knowledge, and results. Success often depends on building strong client relationships and developing specialized expertise.
This analysis shows why marketing agencies must carefully position themselves in the market. Understanding these Five Forces helps agencies identify where they can create lasting advantages in a crowded market.
