Using Porter's Five Forces Framework in your thesis

Developed by Michael Porter, the Five Forces model is designed to look specifically at five aspects ("forces") of an industry:

• the competitiveness of other players in the market;
• the power of substitutes (replacement products/services);
• the power of suppliers;
• the power of buyers;
• the strength of new entrants.

Based on those aspects, you can find out how interesting (or not) it is for a company to establish itself within this industry and what the potential threats are. For example, is there a lot of competition? Do suppliers have a lot of power, or is it manageable? How likely are new players to come in? You can map all that using this model.

You can then use these insights in a SWOT analysis (to identify 'Threats' and 'Opportunities'). Using Porter's Five Forces model, for instance, you map out how a company is doing, what opportunities it can capitalize on, and what challenges it might face. This, in turn, can guide the development of recommendations for your thesis client.

What Porter's Five Forces model looks like in practice is best illustrated using an example. This elaboration gives insight into how you could apply it yourself.

As an example, let's take the company Oatly. They are one of the first to market oat milk. For this brand, Porter's Five Forces model could look like this.

Competitiveness

To analyse internal competition, you could, for example, answer the following questions:

• Who are the main competitors?
• How many competitors are there?
• In what ways do they compete with the company?
• Are competitors asking the same price for their product or is there a difference?
• What else do they compete on? Consider service, social media strategy, etc.
• Are the products similar or are there distinct differences?
• What is the distribution of market shares?

Sample

For example, for Oatly, you can say that there are a few suppliers of plant-based milk, such as Alpro or various supermarkets’ own brands. There are also several alternatives to oat milk, such as soy milk or coconut milk. These differ slightly in product composition. The number of competitors that also offer oat milk is limited. Oatly competes with supermarket brands in terms of price, among other aspects, as supermarkets charge a lower price. However, Oatly has a stronger reputation when it comes to oat milk.

Power of substitutes

For the power of substitutes, you look at possible substitutes for a specific product or service. You examine whether the product or service can be replaced by an alternative. If so, are the options similar or are they markedly different? For example, answer these questions:

• How many substitutes are there?
• Are there differences in price and quality?
• To what extent are customers willing to opt for a substitute?
• What are the possible costs of switching?

Sample

Looking at Oatly, there are a few substitutes in the form of other types of plant-based milk. Supermarket products are a bit cheaper than Oatly's oat milk. The quality may also be lower. Switching involves no cost. With market research, you can investigate the extent to which people who buy Oatly consider an alternative.

Strength of suppliers

To what extent is the brand dependent on suppliers? You examine the strength of that dependency with this criterion. Sometimes there is a lot of choice regarding suppliers; sometimes a brand is tied to one supplier. In the latter case, the supplier has a lot of power.

 

To determine how much power suppliers have, you could, for example, ask these questions:

• How many suppliers can the company choose from?
• To what extent is it difficult to switch to another supplier?
• Does this supplier operate only in a specific industry or in multiple industries?
• How badly does the company need the supplier? Can it also make the product itself?

Sample

For Oatly, you can find out how many suppliers exist for the various ingredients and what their dependency is on them. If there is only one supplier of oats, then Oatly is highly dependent on that one supplier.

Strength of buyers

A company that has only three customers depends more heavily on specific customers than a company with thousands of customers. With this strength, you will examine the extent to which the buyer influences the product, price, service, or other factors.

 

If there is only one provider and the customer desperately needs the product, the customer is likely to have little influence on the company. If there are many providers and the customer can easily switch, the customer's power is greater. The company will then be more likely to give discounts, for example.

 

In determining buyer strength, you can ask these questions, among others:

• How many suppliers are there of this product?
• How many customers does the company have?
• How many companies offer the product?
• To what extent is the buyer dependent on this company?
• Is there scarcity?
• Are discounts given for larger orders?
• How easy is switching to a competitor?
• To what extent does the company depend on a particular buyer for sales?

Sample

With Oatly, to examine this strength, you would have to find out how many shops sell their products, what their market share is, and to what extent they can buy their oat milk from other companies as well.

Strength of new entrants

The last force in Porter's Five Forces model concerns new market entrants. How easy is it for new firms to establish themselves in the market? For example, does entry require a lot of large investments or can firms establish themselves in the market without much cost?

Sample

Are you completing Porter's Five Forces model in the example for Oatly? Then consider what investments Oatly had to make to establish itself in the market. This will give an insight into how easily other providers can join.

Hopefully, this elaboration of Porter's Five Forces Model will help you to use this model in your thesis. Not quite there yet? Read our tips for starting your thesis, our explanation of the thesis structure, and our language tips. We also explain several other models that can be useful in your thesis.