Porter's Five Forces Framework

Porter's Five Forces Framework is a widely used tool for analysing the competitive environment in an industry. The framework was developed by Michael E. Porter, a renowned Harvard Business School professor, and it's based on the idea that the profitability of a company or industry is influenced by the five competitive forces that shape its competitive landscape.

The five forces that Porter identified are:

• Threat of new entrants - the extent to which new competitors can enter the market and disrupt the existing players.
• Bargaining power of suppliers - the ability of suppliers to increase prices or reduce the quality of goods and services provided.
• Bargaining power of buyers - the ability of buyers to negotiate lower prices or higher quality from suppliers.
• Threat of substitute products or services - the extent to which alternative products or services can be used as substitutes for existing ones.
• Rivalry among existing competitors - the intensity of competition among existing players in the industry.

The Porter's Five Forces Framework is usually used when a company is considering entering a new market or when it's trying to understand the competitive dynamics of its current market. It helps identify the key drivers of industry profitability and determine how attractive or unattractive a market is.

The value of using Porter's Five Forces Framework lies in its ability to help companies identify their competitive advantage and develop strategies to leverage that advantage. By understanding the forces that shape their competitive environment, companies can develop more effective marketing, pricing, and product strategies.

To use the Porter's Five Forces Framework, one typically starts by analysing each of the five forces and determining the overall level of competition in the industry. This involves assessing the strength of each force and the potential impact it could have on the company or industry. Based on this analysis, companies can then develop strategies to mitigate the negative effects of these forces and capitalize on any opportunities they present.

For example, a company might lobby for more regulation to make it harder for new competitors to enter the market, perhaps by insisting that substitute product must be labelled in a particular way that is less attractive to competitors as is happening with substitute meat products.