This article examines a methodology called Porter's Five Forces Analysis. In his book Competitive Strategy, Harvard professor Michael Porter describes five forces that influence the profitability of companies. These are the five forces he noted: Intensity of rivalry among existing competitors Threat of entry by new competitors Pressure from substitute products Bargaining power of buyers (customers) Bargaining power of suppliers These five forces, taken together, give us a idea of ​​a company's competitive position and its profitability .RivalsRivals are competitors within an industry. Rivalry in the industry can be weak, with few competitors who do not compete very aggressively. Or it can be intense, with many competitors fighting in an unforgiving environment. Factors that influence the intensity of rivalry are: Number of companies – more companies will lead to greater competition. Fixed costs – with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing competition in the market. Product Differentiation: Relatively equal products will compete on price. Brand identification can reduce rivalry. New Entrants One of the defining characteristics of competitive advantage is the barrier to entry into the industry. Industries with high barriers to entry are usually too expensive for new firms to enter. Industries with low barriers to entry are relatively cheap for new businesses to enter. The threat of new entrants increases as the barrier to entry is reduced in a market. As more and more companies enter a market, you will see rivalry increase and profitability will decrease (in theory) to the point where there will be no incentive for new companies to enter the industry. Here are some common barriers to entry: Patents: Patented technology can be a huge barrier that prevents other companies from entering the market. High cost of entry: The more it costs to start in an industry, the higher the barrier to entry. Brand Loyalty: When brand loyalty is strong within an industry, it can be difficult and expensive to enter the market with a new product. Substitute Products This is probably the most overlooked, and therefore most damaging, element of strategic decision making. It's critical that entrepreneurs (us) don't just look at what the company's direct competitors are doing, but what other types of products people might be buying instead. When switching costs (the costs a customer incurs to switch to a new product) are low, the threat of substitutes is high. As with new entrants, companies can aggressively price their products to keep people from switching.