Current State Analysis (Five Forces)

There are different ways to structure a ‘current state analysis’ but one of the most common tools is Michael Porter’s five forces analysis.  Porter devised this framework for competitive analysis to help structure the key influences on the organization.

It is an ‘outside-in’ approach to current state, but it should help you get a handle on where you’ll need to focus your marketing efforts.

Five Forces:

1. Competitive Rivalry within the Industry
   Competitive rivalry refers to the current competitors in the marketplace.  For a small restaurant, it would be the other restaurants in the same area.  You know who they are and you probably share your customers with them.  If they have a big sale or raise their prices, you are likely immediately affected (good or bad).
2. Bargaining Power of Buyers
   How much ability to your buyers have to influence your price or product?  If you are in a very competitive environment, the buyers likely have a lot of bargaining power.  Any business considering implementing a ‘price match guarantee’ is signaling that the buyers have a lot of power and could easily go somewhere else.
3. Bargaining Power of Suppliers
   This is the converse of the power of buyers.  How much power do you have to influence your suppliers?  Do you have a wide variety of suppliers, or are you ‘locked-in’ to one supplier and are at their mercy?
4. Threat of New Entrants
   Is it easy for a new entrant to set-up shop, or are there large barriers to entry?  Barriers to entry are often physical such as government regulations or physical ownership of land or other assets.  They can also be intangible such as brand or reputation.
5. Threat of Substitution
   This is a key area that is often over-looked.  Substitution is anything the consumer might use to substitute the underlying need that you’re serving.  A substitute for travel might be video-conferencing.  Disruptive substitutes can kill an otherwise sound and profitable business.

Take a few minutes to jot down how these ‘five forces’ affect your organization.  You might find that it’ll highlight some areas that you had never considered before and may help you to better focus your marketing efforts.

Source: Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter (1998)

Chris McPhee, MBA
Email: Chris.McPhee@Marketing-Matters.org