Porter's 5 Forces

AAA

DEFINITION of 'Porter's 5 Forces'

Named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths.

1. Competition in the industry
2. Potential of new entrants into industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products

INVESTOPEDIA EXPLAINS 'Porter's 5 Forces'

Frequently used to identify an industry's structure in order to determine corporate strategy, Porter's model can be applied to any segment of the economy to search for profitability and attractiveness.

VIDEO

Loading the player...
RELATED TERMS
  1. BCG Growth Share Matrix

    A planning tool that uses graphical representations of a company’s ...
  2. Throughput

    In business, the rate at which an organization reaches a given ...
  3. Six Forces Model

    A strategic business tool that helps businesses evaluate the ...
  4. Barriers To Exit

    Obstacles or impediments that prevent a company from exiting ...
  5. Porter Diamond

    A model that attempts to explain the competitive advantage some ...
  6. Loss Leader Strategy

    A business strategy in which a business offers a product or service ...
RELATED FAQS
  1. Besides Porter's 5 forces, what other forces shape industry in the 21st century?

    Competition, potential new competition, supplier power, buyer power and the threat of new substitute products, also known ... Read Full Answer >>
  2. What's the difference between Porter's 5 forces and PESTLE analysis?

    Porter's Five Forces and PESTLE analysis are two sets of business tools for analyzing situations and helping companies to ... Read Full Answer >>
  3. Who uses Porter's 5 forces analysis?

    Anyone who makes decisions about a company's bottom line can implement Porter's five forces analysis, which is a metric for ... Read Full Answer >>
  4. Which of these is not one of Porter's 5 competitive forces?

    Which of these is not one of Porter's 5 competitive forces? a) Threat if new entrantsb) Threat of subsitute goodsc) Rivalry ... Read Full Answer >>
  5. What does the Dividend Discount Model (DDM) show an investor about a company?

    The dividend discount model, or DDM, is not designed to be used in forecasting any possible capital gains from increases ... Read Full Answer >>
  6. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    The parametric method, also known as the variance-covariance method, is a risk management technique for calculating the value ... Read Full Answer >>
Related Articles
  1. Professionals

    Porter's Five Forces

    Porter’s Five Forces is an analysis scheme created by Harvard Business School professor Michael E. Porter. Using this analysis tool, business managers can gauge the level of competition within ...
  2. Markets

    Using Porter's 5 Forces To Analyze Stocks

    These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet.
  3. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  4. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  5. Charts & Patterns

    Why These May Be the Top 4 Growth Stocks of 2015

    These four stocks have high upside potential in 2015.
  6. Entrepreneurship

    The Story Behind Shake Shack's Success

    A humble Madison Square Park hot dog stand grew to become a gourmet casual food powerhouse in a classic American success story.
  7. Charts & Patterns

    Are These the Top Dividend Stocks of 2015?

    These dividend-paying companies offer a lot more than just dividends.
  8. Charts & Patterns

    Top 10 Alternative Energy Stocks for 2015

    As energy demands continue to rise, the alternative energy sector is heating up. Here are the top 10 promising alternative energy stocks for 2015.
  9. Charts & Patterns

    Why Is Chipotle So Successful & Popular?

    Chipotle's emphasis on simplicity and high-quality ingredients have made the restaurant immensely popular among consumers and, in turn, investors.
  10. Investing

    When Will The Bull Market End?

    A few weeks ago, the current bull market celebrated its sixth anniversary, making it one of the longest in history.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center