Phil Gorman, Ph.D.

Porter 5 forces model of ‘industry attractiveness’  Each of the 5 forces is comprised of a number of factors  There is no mathematical formula; judgment is needed  A snapshot of how attractive the industry is for incumbents

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Threat of substitutes Buyer power Threat of potential entrants Entry barriers

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Buyer power Example: discount retail sales Wal-Mart and Target are rivals Procter & Gamble (toothpaste) is a supplier You and I are buyers

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Buyer power Discount retail sales Wal-Mart and Target are rivals Procter & Gamble (toothpaste) is a supplier You and I are buyers Example: toothpaste Procter & Gamble and Colgate Palmolive are rivals People who supply the raw ingredients, and the tubes, are suppliers Wal-Mart is a buyer

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Threat of substitutes Buyer power Threat of potential entrants Entry barriers

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Threat of substitutes Buyer power Threat of potential entrants Entry barriers

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Threat of substitutes Buyer power Threat of potential entrants Entry barriers

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Threat of substitutes Buyer power Threat of potential entrants Entry barriers

“Industry attractiveness”: Porter 5 forces Rivalry Supplier power Threat of substitutes Buyer power Threat of potential entrants Entry barriers

Porter 5 forces: notes  It is a snapshot; need to turn it into a moving picture  Depends on how you draw the boundaries of the playing field  There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces  In the end you make a judgment call

Porter 5 forces: notes  It is a snapshot; need to turn it into a moving picture  Depends on how you draw the boundaries of the playing field  There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces  In the end you make a judgment call

Porter 5 forces: notes  It is a snapshot; need to turn it into a moving picture  Depends on how you draw the boundaries of the playing field  There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces  In the end you make a judgment call

Porter 5 forces: notes  It is a snapshot; need to turn it into a moving picture  Depends on how you draw the boundaries of the playing field  There is no mathematical formula that allows you to simply sum the tallies of the various factors within each of the 5 forces  In the end you make a judgment call

Industry life cycle  As the industry evolves, so does the list of things a company needs to pay attention to

Industry life cycle  Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)  Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product  Maturity: when consumers know exactly what the product is about; demand is leveling off  Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

Industry life cycle  Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)  Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product  Maturity: when consumers know exactly what the product is about; demand is leveling off  Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

Industry life cycle  Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)  Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product  Maturity: when consumers know exactly what the product is about; demand is leveling off  Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

Industry life cycle  Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)  Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product  Maturity: when consumers know exactly what the product is about; demand is leveling off  Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

Industry life cycle  Infancy: Sales are sparse; when the great majority of consumers don’t really know how or why they would use the product (but some ‘lead users’ will buy the product anyway)  Growth: Demand is increasing quickly; this is when consumers increasingly can see how and why they would use the product  Maturity: when consumers know exactly what the product is about; demand is leveling off  Decline: When the product is no longer important due to the introduction of some product that does the same job but better/cheaper

Summary  Porter 5 forces: industry attractiveness  It is a snapshot  Must also assess the trajectory (“moving picture”)  Industry life cycle  Industries generally move in a predictable direction  But the timing is not know ahead of time (15 years to maturity? 100 years to maturity?)