Michael Porter’s 5 + 1 Framework
- Evaluates the influence of the market participants regarding who gets the profits within an industry.
- Explains why profits vary across the industry ecosystem and between industries.
Five Forces Plus One
- Existing Industry Competitors (in the center)
- Potential New Entrants
- Suppliers
- Customers
- Substitute Products/Services
- Complementary Products/Services
Industry Competitors
Rivalry between existing firms.
- Price-based drivers
- Undifferentiated products and low switching costs.
- High fixed-costs industries
- Perishability — cut prices or lose
- Intense industry conditions — slow growth, static market
New Entrants
Barriers of Entry can be a challenge to new entrants.
- Economies of scale (e.g. Walmart)
- Customer switching costs (e.g. aircraft manufacturer)
- Capital requirements (e.g. manufacturing equipment)
- Incumbency advantage (e.g. mining companies)
- Access to distribution channels (e.g. P&G and their retailer relationships)
- Access to suppliers
- Government policies
- High barriers to exit
Supplier
Supplier Bargaining Power Factors
- Supplier concentration (e.g. airplane engines)
- Industry switching costs (e.g. network hardware)
- Differentiated products (e.g. QLED/OLED vs LED)
- Few/no substitutes (e.g. patented pharmaceuticals)
- Forward integration (e.g. Apple Stores)
- Low dependence on single industry (e.g. steel industries)
Buyer
Buyer Bargaining Power Factors
- Customer concentration (e.g. Costco volume buying)
- Low customer switching costs (e.g. airline customers)
- Undifferentiated products (e.g. grocery stores buying fresh fruit)
- Backward integration (e.g. Netflix creating its own content)
Substitutes
- Competes from outside the industry
- Zoom vs travel, e-mail vs snail mail
Complements
- The financial results of the complements can enhance the overall industry profitability.
- Slow growing industries makes compliments more enticing.
- e.g. Hotdogs and hotdog buns. iPhones and cars with CarPlay