Your ability to survive depends on identifying your competitors and understanding how their goods, services, and marketing strategies affect you. Competition directly affects your performance whether you own a Fortune 500 firm or a small, local business.

An industry's vulnerabilities and strengths may be ascertained using Porter's Five Forces, a model that identifies and examines five competitive forces that affect every industry. The structure of an industry is typically identified using the Five Forces analysis to develop corporate strategy. Any sector of the economy may benefit from using Porter's model to analyse industry rivalry better and increase long-term profitability. In terms of business analytics, Porter's Five Forces is regarded as a macro tool since it examines the industry's economy as a whole.

Porter proposed that formulating smart, strategic decisions and creating a compelling competitive strategy for the future require a comprehension of both the competing forces at play and the broader industry structure.

The five forces Porter identifies as influencing industrial competition are;

1. Competitive Rivalry
This force determines the degree of market competitiveness. It considers how many competitors there are currently and what each one is capable of. When few companies are selling a good or service, when the market is expanding, and when customers may quickly and affordably switch to a competitor's product (i.e., there exists a low switching cost), then competition is strong. On the other hand, when there is less competition, a business has more power to bargain and can raise prices according to their will to boost sales and profits.
For instance,
• Let’s consider the case of an FMCG brand Unilever. It faces strong competition in each of the three segments that it operates in. The major and prominent competitors include P&G, Johnson & Johnson, L’Oréal Paris, Helen of Troy Ltd, Nestle Newell Brands, Kerry, Mondelez International, etc. Due to low switching costs, the consumers are willing to try various products of all the brands and hence it calls for stiff competition. Whether it be a Surf Excel (Unilever) detergent or a Tide detergent (P&G), consumers hardly find any difference.
• Now let’s move on to the confectionary sector. The confectionery industry is highly competitive owing to low trade barriers. New entrants frequently enter the markets and launch products to draw customers away from existing players. Mars Inc. faces significant competition from Hershey’s, Nestle, Lindt, Mondelez and so on. -name cos. to which ones each belong to.

2. Bargaining Power of Suppliers
This force examines the degree of influence and control a supplier may have on the possibility of price increases, which would diminish a company's profitability. The lesser number of suppliers there are, the more power they will have. Businesses are in a better position when there are several suppliers. If the bargaining power of a supplier is low, a company can negotiate to get their inputs for a low price, which in turn increases profits and vice versa.
Let’s take examples to understand better.
• Supplier bargaining power in the consumer goods business is limited due to the large number of suppliers across all consumer goods verticals. However, given the current supply chain problem (COVID-19 and the disruptions in the economy caused by it), suppliers might exercise greater influence by abusing resources or purposefully hoarding supplies. However, for a giant like Unilever, the cost of switching to new suppliers is also not very high. Therefore, the bargaining power of suppliers can be viewed as moderate in this case.
• Considering MRF tyres and the tyre industry, suppliers' bargaining power can be divided into various parts depending on the industry's demand for rubber and other petrochemical-based materials like carbon black and nylon cord, among others. The MRF has a very low level of suppliers, and there are also very few materials available, which raises the price. Both the switching cost and the threat of forward integration in MRF are extremely high.

3. Bargaining Power of Customers
This force looks at the consumer's buying power and how it affects prices and product quality. When there are more sellers than consumers, consumers have more power, and since there are many sellers, consumer's switching costs become low. In contrast, a corporation with a large number of smaller, independent consumers will find it simpler to charge greater prices to boost profitability.
For example,
• Buyers in the categories in which Unilever operates are more concerned with product differentiation and quality. Buyers are willing to spend extra for the desired product. Also, Unilever has a large customer base with around 2.5 billion people using its products every day. However, with a plethora of options available for consumers to select from, particularly since the development of multiple online companies and with lower switching costs, Unilever tries to build products which can perform the best for customers to retain them. If any business in the sector, including Unilever, raises prices in an unprecedented manner or deteriorates the quality or safety of its products, consumers are likely to switch to other options.
• Most customers at Starbucks are independent people buying coffee for themselves and acting on their moral principles. They do not engage in coordinated group activities, nor do they make large purchases. Although large purchases are occasionally made, they are often made by businesses rather than by ordinary people. This lack of group cohesion is a sign that buyers have little power to bargain.

4. Threat of New Entrants
A company's strength is also impacted by the force of new competitors entering a market. An established company's position may be considerably undermined the quicker and cheaper it is for a competitor to join its market and become a credible competitor. The chance that an established company's market share will be lost increases as a result. An industry with high entry barriers is, therefore, advantageous for the companies already operating there since the companies may charge higher prices and negotiate better conditions.
For instance,
• The threat posed by new entrants to WhatsApp as a messenger service is low because a large user base would be a must for any new player to succeed in this market. If one of the customers uses the app but the other doesn't, communication would be impossible. To even begin competing with a major brand like WhatsApp, the new entrant would need to build up a sizeable client base.
• Owing to the rapidly changing consumer goods industry and low switching costs of customers, a lot more companies try to enter this segment. This sector offers plenty of room for new businesses to emerge since it meets a variety of customer demands. But not all businesses can provide the kind of service that Unilever delivers due to the significant capital needed. Unilever benefits from economies of scale as a result of the high production levels it maintains to satisfy its clientele. Unilever, while being a very established international corporation, enjoys strong customer brand identification and brand value. Thus, any entrant will have little impact.

5. Threat of Substitute Products
Every company in a given industry competes with businesses in other industries that provide alternatives to its own. A messaging app that replaces email is one example. An airline website with its ticketing system may take the place of travel agencies. The maximum price an industry may charge will be constrained if customers can meet their demands with a different good or service from a competing business. The more appealing an alternative, the tighter the industry profit cap. The threat of substitutes is high if several alternatives can perform the same function as your good or service and vice versa.
For example,
• Unilever operates in a variety of markets; therefore, each industry has its own set of market leaders. Whether it be in personal care, food, hygiene, vitamins, etc., there are several alternatives for every Unilever product. The switching cost in many FMCG products is also quite low; consequently, the threat of substitutes is constantly very high.
• In the case of the banking and financial services industry, since businesses like Apple, Amazon, Meta, and others entered the transaction space—which was formerly held by firms like PayPal—the number of substitutes has increased. There are alternatives to some banking services, such as microlending, crowdsourcing investments, peer-to-peer networks, etc. Additionally, as transactions are carried out on blockchains utilising a diverse network, which does not require an intermediate bank, the rise of cryptocurrencies poses a significant threat to the substitution of traditional banking operations.

You should begin to comprehend the factors affecting your business using Porter's Five Forces. Determine your company's competitive landscape and develop a plan as your next steps. You should ideally be in a position to balance the Five Forces and therefore, increase your earnings.

Porter’s five forces that impact the following significant industries are as follows: