Originally developed by Harvard Business School's Michael E. Porter in 1979, the five forces model looks at five specific factors that determine whether or not a business can be profitable, based on other businesses in the industry.

 

1. Competitive rivalry​

This force examines how intense the competition currently is in the marketplace, which is determined by the number of existing competitors and what each can do.

 

2. Bargaining power of suppliers

This force analyzes how much power a business's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business's profitability.

 

3. Bargaining power of customers

This force examines the power of the consumer and their effect on pricing and quality. Consumers have power when there aren't many of them but there are plentiful sellers, as well as when it is easy for customers to switch from one business's products or services to another's

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4. Threat of new entrants

This force considers how easy or difficult it is for competitors to join the marketplace in the industry being examined.

 

5. Threat of substitute products or services

This force studies how easy it is for consumers to switch from a business's product or service to that of a competitor. It looks at the number of competitors, how their prices and quality compare to the business being examined and how much of a profit those competitors are earning, which would determine if they can lower their costs even more.