What is the Five-Forces Model according to Porter?
Porter, a veteran of classic strategy development, has come up with the 5-Forces model, a model for representing an industry structure. Here 5 forces have an effect on the company:
- The bargaining power of suppliers
- The bargaining power of customers
- The danger of new competitors
- The danger posed by substitute goods or services
- The rivalry within the industry
All 5 forces must be kept in mind by a company throughout, because with them the survival of the company stands and falls.
Suppliers have great bargaining power in particular when there are only a few in the industry from which competitors also source their products. For example, to illustrate the situation with a traditional VWL example, all doner kebab stalls are supplied with meat by only 3 suppliers. Thus the suppliers can demand rather higher prices, since they have a better bargaining position.
The bargaining power of customers can occur in different ways. There are companies which, especially in the B2B sector, only have a few but large customers. If one of these customers decides to switch to a competitor, the result will be a massive drop in sales for the company. Similarly, a large number of customers who turn away from the company as a result of a company crisis or a media "shitstorm" can also cause great damage.
The competitors, whether old or new, harbour the danger of dragging the company into a cost war. The companies stand out from each other in order to offer the cheapest product.
Last but not least, there is the danger that the company's product will become irrelevant due to disruptive innovations. Here the customer needs are satisfied by substitute goods, since the substitutes are cheaper or offer the customer a better benefit and thus offer a more customer-oriented added value.