What is Porter's Five Forces?

Developed by Michael Porter at Harvard Business School, this framework explains why some industries are inherently more profitable than others. The pharmaceutical industry, for example, enjoys high barriers to entry (patents, regulation), low buyer power (patients don't choose which drug to take), and limited substitutes—resulting in consistently high margins. Airlines, by contrast, face low barriers to entry, high buyer price sensitivity, and intense rivalry—resulting in chronically low margins.

Each force should be evaluated as high, medium, or low, with supporting evidence. Threat of new entrants depends on barriers like capital requirements, regulatory hurdles, and brand loyalty. Supplier power depends on concentration, switching costs, and availability of substitutes. Buyer power depends on price sensitivity, information availability, and switching costs.

In case interviews, Five Forces analysis is essential for any market entry or industry assessment case. It tells you whether the industry is attractive enough to enter and where competitive pressure is greatest. Strong candidates go beyond identifying the forces to explaining how the company can position itself to mitigate unfavorable forces.