Topic 4.4 · Strategic Frameworks: Porter’s Five Forces and SWOT Analysis
Strategic Frameworks: Porter’s Five Forces and SWOT
Evaluating market attractiveness with Porter's Five Forces, and assessing internal strengths and weaknesses and external opportunities and threats with SWOT.
30 min read Reviewed
Learning objectives
- 4.4.ADescribe Michael Porter’s Five Forces strategic framework.
- 4.4.BApply Porter’s Five Forces to evaluate the competitiveness of a market.
- 4.4.CDescribe SWOT analysis factors used to evaluate business viability.
- 4.4.DApply SWOT analysis to assess a business’s internal capabilities and external opportunities and threats.
Objective statements © College Board, quoted from the Course and Exam Description.
Porter's Five Forces
Michael Porter's framework judges how attractive and potentially profitable a competitive environment is. It is useful when deciding which market to enter or which pricing strategy to adopt. Strong forces → less attractive. Weak forces → more attractive.
| Force | The threat is STRONG when… |
|---|---|
| Competitive rivalry | There are many direct competitors with equivalent products and little pricing power |
| Threat of new entrants | Barriers to entry are low, so new firms can easily enter and take share |
| Threat of substitutes | Customers have many alternative products, especially cheaper, easier or better ones |
| Customer power | Customers can easily drive prices down: few large buyers, low switching costs |
| Supplier power | There are few suppliers and switching suppliers is costly |
Key terms
- Porter's Five Forces
- A framework for evaluating a market's competitive intensity and profitability: rivalry, threat of new entrants, threat of substitutes, customer power, supplier power.
- Competitive rivalry
- Intensity of competition among existing firms. Usually the strongest force.
- Threat of new entrants
- How easily new firms can enter, determined by barriers to entry.
- Threat of substitutes
- How easily customers can meet the same need with a different product.
- Customer (buyer) power
- Buyers' ability to push prices down, shaped by the number of customers, acquisition costs and switching costs.
- Supplier power
- Suppliers' ability to raise input costs, shaped by the number of suppliers and the cost of switching.
- Switching costs
- Monetary and psychological costs of changing to a different product or supplier.
- SWOT analysis
- A framework evaluating internal Strengths and Weaknesses and external Opportunities and Threats.
- Disruptive innovation
- An innovation that fundamentally changes how customers meet a need, which is a threat to incumbents.
Want to track your progress?
Sign in to mark lessons complete, earn XP and resume where you left off.
Sign in