Porter’s Five Forces is a framework for judging how much profit is realistically available in a market by examining five pressures: rivalry between existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers and the bargaining power of suppliers. Michael Porter of Harvard Business School set it out in 1979, and it is still one of the quickest ways to see why some markets are comfortable and others are a constant fight on price.
How Porter’s Five Forces works
You score each force as weak, moderate or strong for one specific market, then read the five together. The stronger the forces, the harder it is to hold prices and margins.
- Competitive rivalry. How many competitors there are, how alike their offers look and how hard they fight. Twenty near-identical removal firms bidding on the same search terms in Croydon is high rivalry.
- Threat of new entrants. How easily someone new can start. A dropshipping shop can launch in a weekend; a firm of solicitors needs SRA authorisation, insurance and qualified staff, which keeps newcomers out.
- Threat of substitutes. Other ways a customer could solve the same problem. A bookkeeper’s substitute is not only another bookkeeper but accounting software the client runs themselves.
- Buyer power. How easily customers can push prices down or switch. Comparison sites, transparent online pricing and dependence on a handful of large clients all raise it.
- Supplier power. How much your suppliers can squeeze you. A café tied to one specialist roaster, or a retailer making most of its sales through a single marketplace, faces strong supplier power.
In digital marketing, platforms can be suppliers. If most of your enquiries come from Google Ads, Google sets the price of every click through its auction and can change the rules without asking you. That is supplier power in its plainest form.
Why it matters
The framework explains numbers that otherwise look like marketing failures. If your cost per lead keeps rising, the cause may be fierce rivalry and low barriers to entry rather than weak ads. If customers haggle relentlessly, buyer power is high and better copy alone will not fix it. For a UK small business choosing where to put a limited budget, that distinction matters: some problems are solved by marketing, others by changing what you sell or who you sell to.
It also sharpens positioning. A business facing strong rivalry and easy substitutes has every reason to build a unique selling point customers can verify, a brand people search for by name, or a niche where fewer firms compete. Those moves weaken the forces instead of simply spending more against them.
Common mistakes
- Defining the market too broadly. “UK hospitality” tells you nothing. “Independent wedding venues within an hour of Bristol” gives you forces you can actually score.
- Confusing it with a list of rivals. Five Forces describes the structure of a market, not each competitor’s tactics. Pair it with a proper competitor analysis for that.
- Treating it as a one-off. Forces shift. A new marketplace, a regulatory change or a national chain arriving in your area can alter the picture within a year.
- Ignoring substitutes. Businesses watch direct rivals and miss the free tool, the DIY video or the AI assistant quietly taking the simpler jobs.
- Stopping at the diagram. A completed grid with no decision attached is decoration.
How to act on it
Take one product or service and one clearly defined market. For each force, write two or three sentences of evidence: who the rivals are, what it costs to start up, what a customer could do instead, how easily they compare and switch, and which suppliers or platforms you cannot do without. Mark each force weak, moderate or strong.
Then ask what you could change. Strong buyer power can sometimes be reduced with a service package that is harder to compare like for like. Heavy reliance on one ad platform can be reduced by building organic search and an email list you own. Easy entry can be countered with reviews, case studies and accreditations a newcomer cannot match on day one.
Five Forces looks outward at the market. A SWOT analysis looks at your own position within it, and a PESTLE analysis covers wider political, economic and legal change. Used together, they give a strategy something solid to stand on. Turning that analysis into channel choices and a budget is the core of the digital marketing strategy work I do.