How can you use Porter's five forces model to improve your strategy?

To give clarity, let me apply Porter's 5️⃣ forces to Airbnb: 🏠 1️⃣ Rivalry - 📈 High due to fierce competition from hotels and other short-term rental platforms. 2️⃣ The threat of New Entrants - 🚀 High due to ease of creating a technology-based rental platform. 3️⃣ Substitutes - 🏨 High due to options like hotels/staying with friends' houses. 4️⃣ Supplier - 💼 High because property owners can switch to competing platforms, set prices, and dictate terms, affecting Airbnb's costs and margins. 5️⃣ Customers - 🛒 High because of options, pressuring Airbnb to maintain prices and high service quality. Porter's 5 forces are interconnected 🔄 and dynamic ⏳ (forces can change over time) and, thus, are a key framework for strategic planning 🗺️

Porter's five forces model is a valuable tool to enhance your business strategy. 1. Assess the threat of new entrants: Identify barriers to entry, like capital requirements or economies of scale, and strengthen them to protect your market. 2. Analyze the bargaining power of suppliers and customers: By building strong relationships with key suppliers and understanding customer needs, you can negotiate better terms and enhance loyalty. 3. Evaluate the threat of substitute products or services: Innovate to differentiate your offerings and make them irreplaceable in the eyes of your customers. 4. Assess competitive rivalry: Study competitors' strengths and weaknesses, then adjust your strategy to exploit opportunities or mitigate threats.

Strategy to be adopted by MRO Industry considering Porter's Five Forces: 1. Threat of New Entrants: Forge strong ties with manufacturers and airlines; prioritize certifications and tech innovations. 2. Bargaining Power of Suppliers: Cultivate long-term supplier relationships. Maintain a stocked inventory and invest in skills development. 3. Bargaining Power of Buyers: Deliver value-added bundles and cement long-term contracts. Prioritise quality and service excellence. 4. Threat of Substitute Services: Emphasise specialised MRO expertise. Adapt to new aircraft technologies swiftly. 5. Rivalry Among Competitors: Offer swift services, adopt advanced tech, specialise, and consider geographic diversification.

When I look at Netflix's earnings reports, I assume that they apply the 5 Forces model to analyze its competitive landscape. 📊 1️⃣ Rivalry (Rating: 4): 🥊 High competition with Hulu and Amazon Prime. 2️⃣ The threat of New Entrants (Rating: 3): 🚪 Brand loyalty increases the entry barrier. 3️⃣ Threat of Substitutes (Rating: 2): 📺 Cable TV is less attractive. 4️⃣ Bargaining Power of Suppliers (Rating: 4): 💪 High power of content producers. 5️⃣ Bargaining Power of Buyers (Rating: 3): 🔁 Moderate switching costs due to unique content. Porter's Five Forces are not static; supplement your strategy with a SWOT analysis 📝 and focus on specific market segments to yield insights. 🎯

When assessing a particular market or competitive situation through the lens of the Five Forces, it's critical to properly define the competitive set, the degree of rivalry, the competitive positioning of each company and/or within product category, which players in the competitive set have a tendency towards product or service differentiation, which are price-focused, etc.... and importantly, assessing how WE fit into the landscape and what this means for our planning in the next 6-12 months, 3Y and 5Y time horizons. Otherwise, there is a risk of Five Forces becoming a purely academic exercise.

Product differentiation is the key if you cannot increase the size of the pie and expand the market place volume. A well differentiated product becomes vital, especially, during the crisis time when the customer's willingness to pay reduces. Innovating and investing during hay days by accommodating customer experiences and feedbacks will help in creating an innovative product which will help the company stand out against competitors. This will eventually help in expanding market share by enhancing customer's willingness to pay.

Apple has effectively applied Porter's 5️⃣ forces to improve its business strategy. 📈 1️⃣ Reduced rivalry with Samsung, Google through product innovation 🎨, customer experience 🧡, and brand loyalty 💪. 2️⃣ Increased entry barrier through patents 📜, R&D 🔬. 3️⃣ Reduced substitute threat by constantly monitoring 🕵️♂️ and adapting to technological trends 💻. 4️⃣ Reduced supply power with strategic relationships (e.g., Foxconn) that allow control over costs 💲 and quality ✅. 5️⃣ Reduced buyer power by creating a loyal customer base 👥. After analyzing Porter's 5️⃣ forces, you can improve your competitive positioning by forming strategic alliances 🤝 or mergers 🏭.

You can use the model to identify gaps and opportunities in the market and exploit weaknesses or inefficiencies of competitors.

🚨 There are limitations to Porter's 5 forces. Let us take the auto industry 🚗. While you can analyze Ford or GM using 5 forces, it becomes difficult when we apply the same forces to Tesla 🚘. The rise of EVs 🔋 and autonomous driving 🤖 have introduced new dynamics that challenge the static view of the auto sector. Porter's 5 forces do not capture the effect of technology 💻, which is disrupting industries and changing rapidly 🚀. Thus, the 5 forces model is ineffective in dynamic industries where there is a constant change in competition 🥊, substitutes 🔄, and barriers to entry 🚧. Further, in the digital economy 💼, collaboration, partnerships, and ecosystems are crucial 🤝 which aren’t captured well by 5 forces 📉.

@Ramkumar Raj, I tend to disagree on the Auto example. The influx of technology lowers the barriers of entry, supplier power, if you have technology it increases the buyer power. Alternatively Legacy automakers need to transform themselves while investing in two fronts ICE and EV so it is more expensive to compete, while constantly threated by new entries. I think it is a very strong framework and in fact does support dynamic industries

SWOT analysis has traditionally been used across many industries, including in biopharmaceuticals. More recently, the PESTEL analysis has gained adoption for a richer view of the broader landscape. PESTEL is complementary as it includes non-market factors, which can otherwise go unaddressed in Five Forces or SWOT. Depending on objective, likely no need to pursue more than 2 models / analyses. Could be helpful for different sub-teams to work on component parts of the models (context dependent), and then re-group for output after pre-defined work period (~2-3 wks). Importantly, consider how output is moderated, use of ground rules & boundaries, and how to leverage consulting or agency support for optimal outcome.