What is the 'Six Forces Model'

The six forces model is a strategic business tool that helps businesses evaluate the competitiveness and attractiveness of a market. The six force model provides an industry-view and analyzes six key areas:

Competition - Information regarding present competition
New Entrants - Information regarding the ease with which new competition could enter the market
End Users/Buyers - Information regarding the buyers' abilities to affect price
Suppliers - The number and type of sellers
Substitutes - The ease by which a product or service can be substituted
Complementary Products - The impact of related products and services already in the market

BREAKING DOWN 'Six Forces Model'

The five forces model was originally developed by Michael E. Porter of Harvard Business School. As a means of analysis, there were certain limitations in that original model. Among those limitations was the model primarily applied more towards simple and static markets rather than complex and dynamic markets. Furthermore, the model did not account for factors and influences from outside of the market or industry itself. The pace of change in business has also increased and new business models continue to emerge that do not follow the same patterns as incumbent, older businesses.

Limitations of Porter's Model

For instance, the legacy media industry, which includes print, radio, television, and movies, was disrupted by the growth of the internet, which developed outside of those respective markets. That external element changed the dynamics of how media outlets of many formats conducted business. The barriers to entry for new media companies diminished with the advent of online platforms to deliver content. This created new forms of competition and the arrival of new entrants who did not operate as traditional rivals did. The supplier sources for media also changed as more independent and individual creators gained access to tools that allow them to produce content that could be distributed through online channels. This could be done without incurring traditional costs of publishing content the audience. This also allowed new buyers and end users access to media in ways that influenced price as many content sources became available at free or lower costs to the incumbents. Such elements do not easily factor into the models analysis structure.

The six force model later came in the mid-1990s and added complementary products. It is used to evaluate a firm's strategic position in a particular marketplace. The six forces model can also be used to determine the market's overall attractiveness in relation to profitability and competition.

  1. Business Model

    A business model is a company's plan for generating revenues ...
  2. Six-Force Model

    The six-force model is a strategic business framework that helps ...
  3. Model Risk

    Model risk occurs when a financial model used to measure a firm's ...
  4. Fed Model

    The Fed model is a tool used to determine whether the U.S. stock ...
  5. Financial Modeling

    The process by which a firm constructs a financial representation ...
  6. Robust

    Robust is a characteristic describing a model's, test's or system's ...
Related Articles
  1. Investing

    Analyzing Porter's Five Forces on Delta Airlines (DAL)

    Learn about Porter's Five Forces, a framework used to analyze external threats to companies, and discover which forces pose the biggest threats to Delta.
  2. Investing

    Financial Models You Can Create With Excel

    The relatively modest amount of time it takes to build these models can pay for itself by leading you to better investment decisions.
  3. Trading

    Build a Profitable Trading Model In 7 Easy Steps

    Trading models can provide a powerful tool for building profit. Traders can use and customize existing trading models or build an original model. This article provides seven steps to building ...
  4. Investing

    Analyzing Porter's 5 Forces on Coca-Cola (KO)

    Read about how to use the Porter's five forces model to evaluate the competitive landscape and how a large company such as Coca-Cola still has rivals.
  5. Investing

    Porter's Five Forces and Electronic Arts (EA)

    Explore Porter's Five Forces as they apply to video game producer Electronic Arts; learn which external forces pose the biggest threats to EA's business.
  6. Investing

    The Coming Content Bubble

    The heated race to produce and acquire original content could lead to a content bubble.
  7. Managing Wealth

    Factors That Determine Restaurant Attractiveness

    There are many factors to consider that affect how restaurants profit and maintains attractive to customers. Learn these five important factors to be safe.
  8. Investing

    Tesla Model 3 Delays Due to Suppliers: Oppenheimer

    The Model 3 production delays are due to a small number of suppliers, Oppenheimer said in a note to clients.
  9. Financial Advisor

    How to Keep Clients Coming Back to Your Website

    With more Americans going online to get financial information, advisors should make the most of publishing platforms.
  1. Are perfect competition models in economics useful?

    Take a look at some of the arguments made by the proponents and critics of the theory of perfect competition in contemporary ... Read Answer >>
  2. What are some examples of different corporate governance systems across the world?

    Read about the three major types of corporate governance systems: the Japanese model, the Anglo-Saxon model and the continental ... Read Answer >>
  3. What are the advantages and disadvantages of the Gordon Growth Model?

    Understand the advantages and disadvantages of using the Gordon Growth Model to value a company's publicly traded stock. ... Read Answer >>
  4. How do I determine my company's competitive advantage?

    Find out how to determine if your company has a competitive advantage and, if so, learn how to figure out how to make it ... Read Answer >>
  5. What is a power ratio?

    A power ratio is a method used by media companies to measure revenue performance compared to the audience share it controls. ... Read Answer >>
  6. What should be included in a restaurant business model?

    The first element for creating a restaurant business model is determining the restaurant's unique value proposition. Read Answer >>
Trading Center