A Summary of Porter’s Main Points in His Article Created by Samantha Wong, Northeastern University 2009

Increased rivalry exists among competitors in an industry when: 1. Competitors are numerous. 2. Competitors are of roughly equal size and power 3. Industry growth is slow which causes fights to increase market share 4. Product or service lacks differentiation, including Brand Differentiation! 5. Product lacks switching costs

Increased rivalry exists among competitors in an industry when: 6. Fixed costs are high 7. Product is perishable which creates the temptation to cut prices 8. Capacity is normally augmented in large increments 9. Exit barriers are high 10. Rivals are diverse in strategies, origins, and personalities

A supplier group is more powerful if: 1. It is dominated by a few companies 2. It is more concentrated than the industry it sells to 3. Its product is unique or at least differentiated 4. The supplier has built up switching costs 5. It does not contend with other products for sale to the industry 6. It poses a credible threat of integrating forward into the industry’s business 7. The industry is not an important customer of the supplier group

A buyer group is more powerful if: 1. It is a concentrated or purchased in large volumes 2. The products it purchases from the industry are standard and undifferentiated 3. The products it purchases form a component of its products and represent a significant fraction of its costs 4. It earns low profits, which creates great incentive to lower its purchasing costs 5. The industry’s product is unimportant to the quality of the buyers’ products or services 6. The industry’s products do not save the buyer money 7. The buyer poses a credible threat to integrating backward to make the industry’s product

New entrants may bring new capacity, the desire to gain market share, and often substantial resources

1. Economies of scale which force a new aspirant to come in on a large scale or to accept a cost disadvantage. 2. Product differentiation which creates a barrier by forcing entrants to spend heavily to overcome customer loyalty. 3. Capital requirements which create the need to invest large financial resources in order to compete.

4. Cost disadvantages independent of size due to experience curves, proprietary technology, access to the best raw materials, etc. 5. Access to distribution channels that are tied up by existing competitors which makes it more difficult for new entrants to get started. 6. Government policy which can limit or even foreclose entry by controlling such items as license requirements and limits on the access to raw materials.

Substitute products and services can have an impact on the industry because: 1. Substitute products or services limit the potential on an industry by placing a ceiling on prices it can charge. 2. The substitute product may offer a more attractive price-performance trade-off which places a lid on the industry’s profit potential. 3. The customer does not see a noticeable difference in the wants and needs satisfied by the substitute product.