Porter's five forces: template and worked example
Porter's five forces explained in plain English, with a copyable scoring template, the evidence to use for each force and a full worked example for a gym.
Porter's five forces is a way to judge how attractive an industry is by looking at the five pressures that take profit away from the businesses in it: rivalry among existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers and the bargaining power of suppliers.
Michael Porter introduced it in Harvard Business Review in 1979 and restated it in 2008 in The Five Competitive Forces That Shape Strategy. The stronger the forces, the harder it is for anyone in the industry to earn a good return.
Two things most explanations skip. The analysis is about an industry, not your company. And its practical use is finding the part of that industry where the forces are weaker, which is where you want to compete.
The five forces in brief
1. Competitive rivalry
How hard existing competitors fight, especially on price. Competitive rivalry is strong when there are many similar rivals, the market is not growing, products are hard to tell apart and leaving the industry is expensive.
Evidence: the number of rivals, how often they cut prices or run offers, and how many of them advertise on the same searches.
2. Threat of new entrants
How easily newcomers can start. The threat of new entrants is high when start-up costs are low, there is no advantage to being big, no licence is needed and customers are easy to reach.
Evidence: how many businesses started in the last two years, new listings on Google Maps, new advertisers appearing in the ad libraries.
3. Threat of substitutes
Different products that do the same job, such as a video call instead of a business trip. The threat of substitutes is high when the alternative is cheaper, good enough and easy to switch to.
Evidence: what lost customers did instead, which is a question worth asking every one of them.
4. Bargaining power of buyers
How much customers can push prices down or demand more for the same price. The bargaining power of buyers is high when buyers are few or large, switching is free, prices are easy to compare, or the purchase is a big share of their costs.
Evidence: contract lengths in the industry, how often buyers ask for discounts, whether comparison sites exist.
5. Bargaining power of suppliers
How much suppliers can push your costs up. The bargaining power of suppliers is high when there are few suppliers, their input has no substitute and changing supplier is costly.
Evidence: how many suppliers exist for each key input. Remember the suppliers people forget: landlords, platforms you sell through, and scarce skilled staff.
Porter's five forces template
Score each force from 1 to 5, where 1 is a weak force (good for profits) and 5 is a strong force (bad for profits). The trend column matters as much as the score: a 3 that is rising is a bigger problem than a stable 4.
| Force | Questions to answer | Evidence (source and date) | Score 1 to 5 | Trend | So what |
|---|---|---|---|---|---|
| Competitive rivalry | How many direct rivals? How often do prices move? Is the market growing? | ||||
| Threat of new entrants | What does it cost to start? Who started recently? Is a licence or scale needed? | ||||
| Threat of substitutes | What else do buyers use for the same job? Is it cheaper, or getting better? | ||||
| Buyer power | Can buyers switch easily and compare prices? Are any buyers large? | ||||
| Supplier power | How many suppliers for each key input? What does switching cost? | ||||
| Overall | Average |
So two people score the same way, agree what the ends of the scale look like before you start:
| Force | 1 looks like | 5 looks like |
|---|---|---|
| Rivalry | Few rivals, growing market, clear differences | Many similar rivals, flat market, frequent price cuts |
| New entrants | Licences, heavy capital, strong brands | Anyone can start next month for little money |
| Substitutes | Nothing else does the job | A cheaper alternative does it well enough |
| Buyer power | Many small buyers, switching is costly | Few large buyers, or switching is free and prices are public |
| Supplier power | Many interchangeable suppliers | One or two suppliers you cannot replace |
Porter's five forces example: independent gyms
Say you are deciding whether to open an independent gym in a hypothetical town of about 120,000 people. Every count below is invented, but each comes from a source you could check for your own town in an afternoon.
| Force | Evidence | Score | Trend |
|---|---|---|---|
| Competitive rivalry | 11 gyms and studios within 3 miles on Google Maps: 2 budget 24-hour chains at £22 to £25 a month, a council leisure centre, 6 boutique studios and 2 independents. Both chains have run "no joining fee" offers twice this year, each time seen in the Meta Ad Library. | 4 | Rising |
| Threat of new entrants | Equipment can be leased, so start-up cash is modest, and 3 studios opened in the last 18 months. But units with high ceilings and parking are scarce: 2 suitable listings on commercial property sites. | 3 | Stable |
| Threat of substitutes | Running, a free weekly parkrun, home workouts, fitness apps and free outdoor gym equipment in two council parks. | 4 | Stable |
| Buyer power | Members are individuals with no size, but switching is free: both chains sell monthly memberships with no contract and publish prices online. Two local employers buy corporate memberships and expect discounts. | 3 | Stable |
| Supplier power | Equipment suppliers are many and compete. The landlord is the strong supplier: both suitable units are offered on 10-year leases with upward-only rent reviews. Qualified strength coaches are scarce; local job ads stay open for weeks. | 3 | Rising |
| Overall | 3.4 |
What the analysis says
An average of 3.4 says a general-purpose gym in this town is a hard place to make money. Rivals discount, substitutes are free, and members can leave any month. Opening another general gym means competing on price with two chains built to win on price.
The useful step is to run the same five forces for a narrower version of the business, a coached small-group strength gym, and see which forces change:
| Force | General gym | Coached strength gym | Why it changes |
|---|---|---|---|
| Rivalry | 4 | 2 | The chains do not coach; only one rival runs coached small groups |
| New entrants | 3 | 3 | Same units, same costs |
| Substitutes | 4 | 2 | An app cannot correct your technique, and running is not strength training |
| Buyer power | 3 | 2 | Members build a relationship with a coach and a programme, so leaving costs them something |
| Supplier power | 3 | 4 | The business now depends on scarce coaches |
| Overall | 3.4 | 2.6 |
The decision. Open as a coached strength gym, not a general one. Treat coach retention as the main risk, because supplier power is now the strongest force: pay above the local rate and consider a profit share. Negotiate a break clause at year five before signing the lease.
That is the point of the exercise. The five forces did not say "do not open a gym". They said which gym to open and which risk to manage.
How to use the result
Decide at the level of a segment. "The fitness industry" is too broad to score. "Coached strength training in one town" is not.
Act on the force you can move. Raise switching costs to cut buyer power (programmes, progress tracking, community). Add suppliers to cut supplier power. Differentiate to take yourself out of the price fight.
Feed the rising forces into your planning. Forces with a rising trend are the threats box of your SWOT. To compare yourself with specific rivals inside the industry, the next tool is a competitive profile matrix.
Mistakes to avoid
Analysing your company instead of the industry. "We have a loyal customer base" is not a force. It might reduce buyer power for you, which belongs in a SWOT.
Defining the industry too broadly. Gyms, fitness apps and sportswear do not share one set of forces.
Listing without scoring. Five headings with bullet points under each will not tell you which force matters most.
Doing it once. A new chain, a rent review or a free app can move a score within a year.
Adding a sixth force. Porter's 2008 article treats industry growth, technology, government and complementary products as factors that act through the five forces rather than forces of their own. Ask which force each one changes, and score it there.
Keeping the scores current
Rivalry and new entrants are the forces with the most public evidence: rivals' prices and offers, who is advertising on your searches, new pages, new listings. Check them quarterly.
Figo watches the competitors you name every week, covering their ads, pricing pages, new pages, rankings and reviews, which keeps the rivalry row current. Ours, so judge accordingly. It will not spot a new entrant you are not tracking, so search Google Maps and the ad libraries for new names each quarter as well.
Questions people ask
Who created Porter's five forces?
Michael E. Porter of Harvard Business School, in his 1979 Harvard Business Review article How Competitive Forces Shape Strategy. He restated and extended it in the same journal in 2008.
What is the difference between Porter's five forces and a SWOT analysis?
Five forces looks at the structure of a whole industry and why profits there are high or low. A SWOT looks at one business. The forces feed the opportunities and threats boxes of a SWOT.
Which of the five forces is the most important?
Whichever is strongest in your industry. Porter's argument is that the strongest force or forces set the industry's profitability, so that is where strategy has to focus.
Is Porter's five forces still relevant?
For judging how hard it is to make money in a market, yes. Critics say it is static and underplays cooperation and platforms, which is why you should score the trend for each force and re-run it when the market shifts.
See it on your own competitors
Figo checks their ads, pages, rankings and reviews every week, then tells you what to do in plain words. Set up in two minutes.
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