porters-five-forces

Porter's Five Forces

A market is attractive when the five forces are weak (low competitive pressure). When forces are strong, profits get squeezed and even good companies struggle. This skill produces a scored, evidence-anchored five-forces analysis suitable for a strategy memo.

When to invoke

• Evaluating a new market entry (geographic expansion, new vertical, new product line)
• Pre-mortem on a strategic bet
• Investor-deck "why now / why us" market analysis
• Annual strategic refresh — where does pricing power sit?

Don't use it for tactical campaign decisions. This is structural analysis, not channel optimization.

Inputs

• Brand name + industry
• Sub-vertical / micro-niche (specific)
• Number and shape of competitors (use competitor-discovery-cot first if you don't have a defensible set)
• Customer segments + price sensitivity intel
• Supply-side / vendor / labor dependencies
• Substitute solutions customers might use

If any of these are unknown, mark them in the output's unknowns array — do not invent.

The five forces

1. Threat of new entrants

How easily can a new competitor enter and capture share?

Scoring drivers (raise = high threat):

• Low capital requirements
• No regulatory moat
• No proprietary technology required
• Low brand-loyalty friction
• Low economies of scale

Scoring drivers (lower = low threat):

• High capital intensity
• Regulated/licensed market
• Network effects already entrenched
• Proprietary data or distribution

2. Bargaining power of suppliers

How much can input providers (vendors, labor, infrastructure) dictate terms?

High supplier power signals:

• Few suppliers / supplier concentration
• High switching cost between suppliers
• Suppliers can forward-integrate
• Critical input with no substitute

3. Bargaining power of buyers

How much can customers dictate price and terms?

High buyer power signals:

• Customer concentration (few large buyers)
• Low switching cost
• Buyer can backward-integrate (build it themselves)
• Product is undifferentiated / commoditized
• High price transparency

4. Threat of substitutes

What alternative solutions solve the same job-to-be-done?

High substitute threat signals:

• Alternative with better price-performance
• Low switching cost to substitute
• Substitute is improving rapidly (e.g., AI replacing manual workflows)
• Buyer's job-to-be-done can be solved another way

5. Competitive rivalry

How intense is rivalry among existing competitors?

High rivalry signals:

• Many competitors of similar size (fragmented market)
• Slow industry growth (zero-sum)
• Low product differentiation
• High exit barriers (capital, contracts)
• Recurring price wars

Output schema

{
  "threatOfNewEntrants": {
    "level": "low | medium | high",
    "score": 6.5,
    "factors": ["Specific factor with evidence", "..."],
    "barriers": ["Existing barriers to entry in this market"],
    "opportunities": ["How the brand can strengthen barriers"]
  },
  "bargainingPowerOfSuppliers": {
    "level": "low | medium | high",
    "score": 5.0,
    "factors": ["..."],
    "keySuppliers": ["Types of critical suppliers"],
    "risks": ["Supply chain risks"]
  },
  "bargainingPowerOfBuyers": {
    "level": "low | medium | high",
    "score": 7.0,
    "factors": ["..."],
    "buyerSegments": ["Key customer segments"],
    "priceSensitivity": "Low | Medium | High — with reasoning"
  },
  "threatOfSubstitutes": {
    "level": "low | medium | high",
    "score": 4.0,
    "substitutes": ["Alternative 1", "Alternative 2"],
    "switchingCosts": "Low | Medium | High — with reasoning",
    "factors": ["..."]
  },
  "competitiveRivalry": {
    "level": "low | medium | high",
    "score": 8.0,
    "numberOfCompetitors": 12,
    "marketConcentration": "Fragmented | Moderately concentrated | Highly concentrated",
    "competitionFactors": ["Key competitive factors"],
    "differentiationLevel": "Low | Medium | High — with reasoning"
  },
  "overallAttractiveness": {
    "score": 6.2,
    "summary": "One-paragraph assessment",
    "strategicImplications": [
      "Strategic recommendation 1 — what to do given the forces",
      "Strategic recommendation 2",
      "Strategic recommendation 3"
    ]
  },
  "responsePackage": {
    "selectedResponses": ["response_id_1", "response_id_2"],
    "coverageMap": {
      "threatOfNewEntrants": ["response_id_1"],
      "bargainingPowerOfBuyers": ["response_id_1", "response_id_2"],
      "competitiveRivalry": ["response_id_2"]
    },
    "totalCost": 28000,
    "uncoveredForces": [],
    "singleCoverRisks": ["threatOfNewEntrants"],
    "solverStatus": "optimal"
  },
  "confidence": 0.75,
  "unknowns": ["What you couldn't assess due to missing data"]
}

Strategic response packaging (Z3 solver)

After scoring the five forces, generate N candidate strategic responses (typically 5-10). Each response:

• Addresses 1-3 forces (reduces their score)
• Has an estimated cost (dollar or effort)
• Has an expected impact per force addressed

Use the set-cover template from skills/solver-patterns (Template 4) to find the min-cost package of responses that brings every force scored ≥ threshold (default: ≥ 6.0, i.e. "medium-high" or above) below that threshold.

Solver flow (per skills/solver-patterns §4 and skills/gtm-output-schemas §8):

1. clear_model — fresh session
2. Define forces-to-cover: those with score ≥ threshold
3. Build coverage matrix: N candidate responses × M forces-above-threshold
4. Costs = estimated dollar cost per response
5. add_item calls per Template 4 (set-cover, min-cost variant — no target_size cap)
6. solve_model with 10s timeout
7. On SAT: the selected responses are the cheapest defensive package
8. On UNSAT: no combination of candidates can defang all strong forces — report which forces remain above threshold and recommend developing new response options
9. clear_model — cleanup

This closes the loop from "here's your five-forces score" to "here's the cheapest package of strategic moves that addresses every dangerous force."

Scoring guide

• 0-3 = low force (favorable to incumbents)
• 4-6 = medium force (balanced)
• 7-10 = high force (unfavorable, profit-squeezing)

For overall attractiveness, the math is inverted:

• Score = 10 – (average of the five forces)
• 7-10 = highly attractive market
• 4-6 = moderately attractive
• 0-3 = unattractive (high pressure, low returns)

Quality bar

• Every score must cite at least one specific factor. No bare numbers.
• Strategic implications must be actionable. "Differentiate" is not actionable. "Move from horizontal to vertical SaaS positioning to escape buyer concentration in the SMB segment" is.
• Confidence < 0.6 means flag the analysis as preliminary. Don't pretend certainty you don't have.
• unknowns array is mandatory. What you can't assess is information.

Common pitfalls

• Treating "many competitors" as automatically high rivalry. Many similar-sized competitors with low differentiation in a slow-growth market = high rivalry. Many competitors in fast-growth markets often co-exist fine.
• Ignoring substitutes. AI is reshaping substitute threat in almost every category right now. If your substitute analysis doesn't mention AI tooling that could solve the job differently, you missed it.
• Static analysis. Forces shift. Note recent direction (rising / stable / falling) when evidence supports it.