How to Construct a Competitive Analysis

Porter's Five Forces is a well-known framework for analyzing competition.

Competition is the hallmark of capitalism. If you can build it better and faster, then you will be rewarded with higher demand. As such, managers are continuously searching for ways to compete against their peers. One popular framework for analyzing competition is Porter's Five Forces. It is a model developed by Micheal Porter. The model looks at competition from five different perspectives, including suppliers, buyers, rivals, substitutes and barriers to entry.

Instructions

1. Assess the company's suppliers. Volume matters to suppliers. If you have a higher number of sales going to one supplier that supplier has a great deal of power. On the other hand, high volume may also translate into lower prices. It is important to consider both scenarios in your analysis.

2. Identify the barriers to entry. Competitive industries usually have low barriers to entry, making it easier for competitors to enter the arena. If you operate in an industry with high barriers to entry, the level of competition is usually lower.

3. Include a section on the threat of substitutes. If a customer can easily switch from one of your products to a competitor's product, there's most likely a higher degree of competition in the industry.

4. Create a section on buyer power. Buyer power is the opposite of supplier power and can be discussed separately or together. The more customers you have the more competitive you are in the industry and vice versa.

5. Draw a conclusion based on the degree of rivalry. Include summaries of each of the other five forces and then use the degree of rivalry as a basis for conclusion. Discuss exit barriers, industry concentration, brand identity and industry growth in the conclusion.

References

• QuickMBA: Porter's 5 Forces