• Rivalry among competing firms

Industry rivalry refers to the intensity of competition among existing companies in the same
industry.

Factor Explanation When Rivalry is High When Rivalry is Low

1. Number of How many firms are Many competitors of Few competitors or
Competitors competing in the same similar size. one dominant player.
market space.
2. Diversity of How different the Competitors from different Competitors have
Competitors competitors are in countries, cost structures, similar approaches
terms of strategies, or business models (high and goals, often
goals, cultures, origins, unpredictability). cooperate implicitly.
product portfolio
[Link]/Industry Speed at which the Slow or declining growth Fast-growing markets
Growth Rate market is expanding. forces firms to fight for allow companies to
market share. grow without
aggressive
competition.
Companies can grow
without taking share
from each other.
4. Brand Loyalty Degree to which Low brand loyalty makes it High brand loyalty
customers stick to a easy for consumers to makes customers less
brand and resist switch brands. sensitive to rivals’
switching. actions.
5. Product Uniqueness of products Little differentiation leads Strong differentiation
Differentiation in the eyes of to price wars and direct gives companies
consumers. competition. protected market
segments.
6. Barriers to Exit Costs or difficulties High barriers (investments, Low barriers allow
involved in leaving the regulations) trap struggling firms to
industry (assets, companies in the market, easily leave, reducing
employees, contracts). increasing rivalry. rivalry.
7. Switching Costs The cost (money, time, Low switching costs High switching costs
effort) for customers to encourage customers to lock customers in,
switch to another move between brands reducing rivalry.
brand. frequently.
 • The Bargaining Power of Suppliers
Supplier power refers to the ability of suppliers to influence the price, quality, and availability of
materials or services. When supplier power is high, suppliers can demand higher prices or impose
unfavorable terms on companies.

Factor Explanation When Supplier Power When Supplier

is High Power is Low
1. Number of The number of Few suppliers control Many suppliers
Suppliers available suppliers in supply (limited (buyers can easily
the market. options). switch).
2. Uniqueness of How specialized or Suppliers offer unique, Standard, widely
Supplier Inputs rare the supplier’s hard-to-replace available inputs.
product or service is. materials or services.
3. Supplier Degree to which Few, dominant Many small,
Concentration supply is controlled suppliers hold most fragmented
by a few large market share. suppliers with no
suppliers. market control.
4. Switching Costs of Costs (financial, time, High costs to switch Low switching
Raw Materials operational) involved suppliers (retraining, costs (easy to
in changing suppliers. retooling, new change suppliers).
contracts).
5. Vertical Supplier’s ability to Supplier can integrate Supplier has no
(backward or move into the buyer’s forward (e.g., selling capacity or interest
forward) Integration business (becoming a directly to customers). to enter buyer’s
of Suppliers competitor). Automotive, Apple, market.
Zara
6. Availability of Whether alternative No good substitutes, Readily available
Substitutes raw materials or increasing dependence alternatives reduce
suppliers are on current supplier. dependency.
available.
(another input,
material, technology,
method to do the
same job).
 • The Bargaining Power of Buyer
Buyer power refers to the ability of customers to influence pricing, product quality, and service
terms. When buyer power is high, customers can demand lower prices, better quality, or more
services.

Factor Explanation When Buyer Power When Buyer Power

is High is Low
1. Buyer How many Few buyers control Many buyers, no
Concentration / customers are in the most of the purchases. single buyer
Number of market relative to dominates.
Customers the number of
sellers.
2. Size of Each The volume of Large, bulk orders Small, frequent
Customer Order purchases per buyer. give buyers orders reduce buyer
negotiation power. influence.
3. Price Sensitivity How strongly Buyers are very Buyers are less price-
buyers respond to sensitive to price sensitive, perhaps
price changes. changes and will due to brand loyalty
easily switch to or product
cheaper alternatives. importance.
4. Availability of Whether alternative Many substitutes Few or no substitutes
Substitutes products exist that make switching easy make buyers more
can satisfy the same for buyers. dependent on the
need. product.
5. Product How essential the If not essential, buyers If essential, buyers
Importance to Buyer product is to the can easily walk away are less likely to push
buyer’s operations or negotiate back aggressively on
or life. aggressively. price.
6. Product If the product Buyers will If the product is a
Represents High % accounts for a big aggressively search small cost, buyers
of Buyer’s Costs part of the buyer’s for cheaper options will be less price-
versus price expenses. and push prices down. focused.
sensitivity
7. Switching Costs Costs (financial, Low switching costs High switching costs
for Buyer time, effort) encourage buyers to lock buyers in and
involved in change suppliers reduce their power.
changing suppliers. easily.
 • Threat of New Entrants
The threat of new entrants refers to how easy or difficult it is for new competitors to enter the
industry and challenge existing players.

Factor Explanation When Threat is When Threat is Low

High
1. Economies of Cost advantages that Small-scale Large-scale
Scale large firms have due to production is cost- production is required
higher production efficient (easy for to compete cost-
volumes. new players to start). effectively
(discourages new
entrants).
2. Brand Loyalty Customer preference Low brand loyalty Strong brand loyalty
for established brands. makes it easy for makes it hard for
new entrants to win newcomers to attract
customers. buyers.
3. Product How unique the Low differentiation High differentiation
Differentiation existing products are in → easy to copy or → existing brands are
the market. substitute. hard to replace.
4. Capital The amount of Low capital High capital
Requirements investment needed to investment required investment required
start a business in the → easy market → discourages entry.
industry. entry.
5. Cumulative Advantage from If experience is not a If industry know-how
Experience experience in major advantage, gives a major
(Learning Curve) production, new players can advantage, it’s hard
distribution, or catch up quickly. for new entrants to
marketing. compete.
6. Switching Costs Costs for customers to Low switching costs High switching costs
switch to a new brand → customers easily → customers stick
or supplier. try new brands. with existing
suppliers.
7. Access to How easy it is to get Easy access to Tight control of
Distribution shelf space, online distributors and distribution by
Channels presence, or supply retailers → higher existing players →
contracts. threat of new barrier to new
entrants. entrants.
8. Cost advantage/ Unique advantages No unique cost Existing players have
disadvantages such as proprietary advantages → new cost advantages new
Independent of technology, patents, players can compete entrants can’t easily
Size favorable locations, or easily. replicate.
government subsidies.
9. Government Laws, regulations, and Few legal or Strict regulations,
Policies licensing requirements regulatory barriers licenses, or tariffs
that restrict entry.
 → easy for new protect existing
players to enter. companies.

• Threat of Substitute Products

The threat of substitutes refers to the risk that consumers may shift to alternative products or
services that fulfill the same need, even if they come from outside the core industry.

Factor Explanation When Threat is High When Threat is

Low
1. Availability of Whether alternative Many substitutes exist Few or no practical
Substitute products exist that (example: juice can be substitutes available.
Products can satisfy the same replaced by water, soft
need or function. drinks, or plant-based
drinks).
2. Relative Price- How the price and Substitutes offer similar Substitutes are more
Performance of quality of substitutes or better performance at expensive or lower
Alternatives compare to the a lower price. quality.
original product.
3. Consumer Whether consumers Consumers are flexible Consumers are loyal
Willingness to are open to trying and frequently try new and resist switching
Switch alternative products. options. to alternatives.
4. Switching Costs Costs (time, effort, Low switching costs High switching costs
money) associated make it easy for discourage
with changing to a consumers to switch. consumers from
substitute product. switching.
5. Innovation in The rate at which Fast innovation brings Little innovation in
Substitutes new, attractive more appealing alternatives keeps the
substitutes are being substitutes into the threat low.
developed. market.
6. Perceived Level How unique the Low differentiation Strong differentiation
of Product original product is in makes it easy for keeps consumers
Differentiation the eyes of substitutes to attract attached to the
consumers. customers. original product.