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Use Porters Five Forces of Competitive Position Analysis to assess the position of your business.

Template for analysis of competitive forces using Porters model


This template is comprised of 5 tables, each of which is used to assess the level of threat posed by one of Porters five
forces of competitive position. In each tables the parameters are provided for assessment of the competition along with a
short description of them. The assessment of the parameters is scored on a scale of 1 to 3. In order to assign a score for a
parameter, simply select one of the three statements which best matches to the situation and record the corresponding score
(from 1 to 3). The total number of points for each table is then used to determine the level of competitive threat presented
by each of the five forces.
Step one: assess the competitiveness of the companys product and the level of competition on the market
1.1 Substitutes
Parameter

Commentary

Substitutes
(price/quality)

A substitute is capable of
achieving the same quality
at lower prices

3
Substitutes exist and
account for large
share on the market

Parameter score
2
Substitutes exist but
have only recently
entered the market and
account for small share

Total score
1 point
2 points
3 points

Low level of threats from substitutes


Medium level threats from substitutes
High level of threats from substitutes

1
No known
substitutes

1.2 Industry competition


Parameter score
2
Medium level of
market saturation
(3-10)

1
Small number of
players
(1-3)

Stagnation or
decline

Slowing growth

Rapid growth

Companies sell a
standardized
product

The product is
standardized
according to core
parameters but also
possess key
differing features
which provide
additional
advantages

The products of
different companies
substantially differ
from one another

Tough price
competition, lack of
opportunity to raise
prices

There is
opportunity to raise
prices but only at
the same rate as
growth in expenses

There is always an
opportunity to raise
prices to cover
growing expenses as
well as increase
profits

Parameter

Commentary

Number of
players

The higher the number of


players the higher the level of
competition and risk of losing
market share

High level of
market saturation

Market growth
rate

The lower the market growth


rate the higher the risk of
restructuring of market share

Level of product
differentiation

Limitations on
raising prices

The lower the level of


differentiation, the higher the
level of standardization and
the higher the risk of
consumers shifting between
various companies on the
market

The lower the level of


opportunity for raising prices
the higher the risk of profit
loss due to growth in expenses

Total score
4 points
5-8 points
9-12 points

Low level of industry competition


Medium level of industry competition
High level of industry competition

1.3 New entrants


Parameter
Economy of
scale
opportunities
Strong brands
with a high level
of consumer
awareness and
loyalty

Commentary
The larger the production
volume, the lower the cost of
materials and the lower
overhead costs per item
created
The stronger the existing
brands on the market, the
more difficult it is for new
players to gain a foothold on
the market

Product
differentiation

The higher the level of


differentiation, the more
difficult it is for new players
to enter the market and claim
an unoccupied market niche

Market entry
costs

The higher the level of


investment required to get
started in the industry, the
more difficult it is for new
players to enter the market

Access to
distribution
channels

The more difficult it is to


reach the target audience, the
less appealing the industry is
for new players

Government
policy

The government can limit or


close market entry through
licensing requirements,
limitations on access to
important raw materials, and
price regulations

Readiness of
existing players
to lower prices

If players are prepared to


lower prices to maintain
market share, then this
presents a significant barrier
for new entrants

Industry growth
rate

The higher the growth rate,


the more eager new players
will be to enter the market
Total
8 points
9-16 points
17-24 points

3
Nonexistent

Parameter score
2
Only certain market
players have such
opportunities

1
Significant

No major players

2-3 major players


account for 50% of the
market

2-3 major players


account for 80% of
the market

Low level of
product diversity

Micro-niches exist

All possible market


niches are occupied

Low (payback
within 1-3 months
of start of
operations)

Medium (payback
within 6-12 months of
start of operations)

High (payback
period longer than
one year from start
of operations)

Access to
distribution
channels are full
open

Access to distribution
channels requires a
moderate level of
investment

Access to
distribution
channels is limited

The state has a limited


involvement in the
industrys functioning

The state
completely
regulates the
industry and
establishes
limitations

Existing players
will not lower
prices

Major players will not


lower prices

Any attempt to
offer lower prices
will be met by
lower prices by
existing players

High and
increasing

Slowing

Stagnation or
decline

No limitations
imposed by the
state

Low level of threats from new entrants


Medium level of threats from new entrants
High level of threats from new entrants

Step two: Assess the threats coming from consumers


2.1 Bargaining power of buyers
Parameter

Commentary

Share of buyers
accounting for
large portion of
sales

If a few buyers are making


large-scale purchases, the
company may be forced to
make concessions to them

3
Several clients account
for more than 80% of
sales

Parameter score
2
A small portion of
clients account for
approximately 50% of
sales

1
The sales volume
is evenly
distributed among
all clients

The companys product


is not unique and there
are fully analogous
products available on
the market

The companys product


is partially unique, with
distinctive features
which are important for
clients

The companys
product is entirely
unique and there
is nothing
analogous on the
market

Aptitude to
switch to
substitutes

The less unique the


companys product, the
higher the likelihood that
the buyer can find a
substitutes with additional
risk for the buyer

Price sensitivity

The higher the price


sensitivity the greater the
likelihood that the buyer will
seek a lower price with a
competitor

The buyer will always


switch to the product
with the lowest price

The buyer will switch


producers only if there
is a significant price
difference

The buyer has no


price sensitivity

Consumers are
not satisfied
with the level of
quality available
on the market

A lack of satisfaction in the


quality creates latent
demand which can be
satisfied by new entrants or
existing competitors

Lack of satisfaction
with the key features of
the product

Lack of satisfaction
with the secondary
features of the product

Full satisfaction
with the product

Total
4 points
5-8 points
9-12 points

Low level of threats of client loss


Medium level of threats of client loss
High level of threats of client loss

Step three: Assess the threats to your business coming from suppliers
3.1. Bargaining power of suppliers
Parameter score
2
1
Small number of suppliers or
Large selection of
monopoly
suppliers

Parameter

Commentary

Number of
suppliers

The smaller the number of suppliers,


the greater the likelihood of
unwarranted increases in prices

Limitations in the
resources of
suppliers

The greater the level of limitation of


supplier resources, the greater the
likelihood of price growth

Limitations in the volume of


resources

No limitations

Costs incurred from


changing suppliers

The higher the costs of switching


suppliers, the greater the threat of
price growth

High costs of switching


suppliers

Low cost of switching


suppliers

Supplier priorities

The lower the level of priority given


to the industry by the supplier, the
less attention/effort the supplier will
make, which implies a higher risk of
poor-quality work

Low priority of the industry


for the supplier

High priority of the


industry for the
supplier

Total

Write your conclusion:

4 points
5-6 points

Low level of supplier bargaining power


Medium level of supplier bargaining power

7-8 points

High level of supplier bargaining power

Draw Porters Five forces rabbit:

Draw Cause and Effect Diagram (fishbone) which would depict key areas where quality issues can come from.