Industry Analysis Exercise: 5 forces
I. Barriers to Entry
Yes No
(Unattractive) (Attractive)
Do existing firms have a advantage in your segment of the
industry? Do costs decline significantly with volume? (called
scale economies.)
Are there any proprietary product differences in your industry?
For example, are products protected by patents?
Are there established brand identities in your industry?
Do existing customers incur any significant costs in switching
suppliers?
Is a lot of capital needed to enter your industry?
Is serviceable used equipment unavailable/expensive?
Would you face difficulty in accessing distribution channels?
Would you face difficulty obtaining the necessary skilled people,
materials or suppliers?
Does experience (not volume) help you to continuously lower
costs? Experience effects mean incumbent firms have figured
out how to do it better and cheaper; and it would be difficult for
less experienced firm to gain this knowledge without going
through the same process.
Is the industry growing slowly?
Are there accepted product standards or specifications? Is there
is an industry standard setting or certification body?
Are there any licenses, insurance, or qualifications that are
difficult or expensive to obtain?
2
II. Bargaining Power of Buyers:
(to what extent are your customers locked into you)
Yes No
(Attractive) (Unattractive)
Is there a large number of buyers/customers relative to the
number of firms in the business? Do you have a large number
of customers, each with relatively small purchases?
Your product is a small part of the cost but critically affects the
value of your customers’ end product.
Does the customer face any significant costs in switching
suppliers?
Does the buyer need a lot of important (technical) information
to inform their purchasing decision?
Is there anything that prevents customers from taking your
function in-house? (i.e. backward integration)
Are customers relatively insensitive to price?
Products in this industry are unique, or there are accepted
brands?
My customers’ businesses are profitable?
III. Threat of substitutes:
(some other product or service which performs the same job as yours)
Possible substitutes for your product:
Yes No
(Attractive) (Unattractive)
Substitutes have performance limitations which do not
completely offset their lower price, or their performance
advantage is not justified by their higher price.
My customer will incur costs or critical uncertainties in
switching to a substitute.
My customer has no real substitute.
3
IV. Bargaining power of suppliers:
Yes No
(Attractive) (Unattractive)
My inputs (materials, labour, supplies, services, etc) are
commodities, rather than unique or differentiated.
The quality of inputs is not critical to my finished product.
I can switch between suppliers quickly and cheaply.
My suppliers would find it difficult to enter my business, or
would find it difficult to perform my function in-house. (i.e.
forward integration)
I can substitute inputs readily.
I have many potential suppliers.
My business is important to my suppliers.
My cost of purchases does not have a significant influence on
my overall costs.
4
V. Determinants of rivalry among competitors
Yes No
(Attractive) (Unattractive)
My industry is growing rapidly.
There are few incumbent competitors.
My competitors are all of approximately the same size as me.
The industry is not cyclical with intermittent over-capacity.
The fixed costs of the business are a relatively low portion of
total costs.
There are significant product differences and brand identities
between the competitors.
My manufacturing or distribution processes have unique or
proprietary features that give me lower costs or a higher value
product.
My competitors are diversified rather than specialized.
It would not be hard to get out of this business because there
are no specialized skills and facilities or long term contract
commitments, etc.
My customers would incur significant costs in switching to a
competitor.
My product is complex and non-standardized. It requires a
detailed understanding on the part of my customer.
5
Overall industry rating:
Attractive Moderate Unattractive
(yes) (no)
Barriers to entry/mobility.
Bargaining power of buyers.
Threat of substitutes.
Bargaining power of suppliers.
Rivalry among competitors.