Five Forces Framework Definition

The Five Forces Framework is a tool for business strategy development created by Michael Porter. It is used to analyze the competitive environment of a given industry and understand the underlying forces that shape its profitability. The framework has five main elements:

1) Threat of new entrants: This force measures the likelihood of new firms entering the market and competing with existing ones. A high threat of new entrants indicates a less attractive market, as there will be more competition for customers and resources.

2) Bargaining power of buyers: This force refers to the ability of buyers to negotiate prices and terms with suppliers. If buyers have strong bargaining power, they can drive down prices and demand better terms from suppliers. This can reduce profitability for existing firms in the market.

3) Bargaining power of suppliers: This force measures the ability of suppliers to negotiate prices and terms with buyers. If suppliers have strong bargaining power, they can drive up prices and demand better terms from buyers. This can reduce profitability for existing firms in the market.

4) Threat of substitute products or services: This force measures the likelihood that customers will switch to alternative products or services if they are not satisfied with what is currently available. A high threat of substitutes indicates a less attractive market, as firms will need to invest more in marketing and product development to differentiate themselves from competitors.

5) Rivalry among existing competitors: This force captures the intensity of competition among existing firms in the market. A high level of rivalry