Porter's Five Forces analyses the structural forces that determine competitive intensity and profitability: competitive rivalry, supplier power, buyer power, threat of substitution, and threat of new entrants.
Market entry decisions, strategic positioning, and understanding structural forces that will constrain margins and growth.
- COMPETITIVE RIVALRY: How intense is competition between existing players?
- SUPPLIER POWER: How much leverage do your suppliers have?
- BUYER POWER: How much leverage do your customers have?
- THREAT OF SUBSTITUTION: Can customers achieve the same goal a different way?
- THREAT OF NEW ENTRANTS: How easy is it for new competitors to enter?
- Rate each force High / Medium / Low — low forces = attractive industry
Rivalry: High — Apple Music, YouTube Music, Amazon compete directly. Supplier power: Very high — three major labels control most popular catalogue. Buyer power: Low — individual consumers have minimal leverage. Substitution: Medium — YouTube and piracy remain alternatives. New entrants: Medium — catalogue licensing creates real barriers. Net: attractive but label power is existential risk.
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- Treating it as a one-time analysis — competitive forces change over time
- Ignoring regulatory change and technology disruption as complementary forces
- Being too optimistic about your own position relative to each force
- Competitive Strategy — Michael Porter