[3] The model provides a framework of six key forces that should be considered when defining corporate strategy to determine the overall attractiveness of an industry.
The forces are: Although there are a number of factors that can impact profitability in the short term – weather, the business cycle – an assessment of the competitive forces in a given market provides a framework for anticipating and influencing competitiveness and profitability in the medium and long term.
This in turn can improve industry profitability through increasing value relative to substitutes and raising the barriers of entry for new potential competitors.
[4][5][7] New entrants put pressure on current organisations within an industry through their desire to gain market share.
This in turn puts pressure on prices, costs and the rate of investment needed to sustain a business within the industry.
[4][5][7] According to Porter, there are 7 major barriers:[4] Powerful customers can play different companies off against each other in order to drive price down or demand a high quality of service.
As an example, a clothesline and a clothes dryer machine have almost identical purpose The occasion of the product refers to when, where and how it is used.
Products that are sold in different areas will have a lower degree of substitution, due to the additional costs associated with transporting or travelling to purchase the goods.
Adversely, if performance is bad or prices rise within the complementary product's market it can negatively impact upon the level of profit that the industry can obtain.
It is a framework that helps companies identify threats and evaluate the best strategy to move forward with to increase profitability and competitiveness.
[4] In addition, the revised framework has been challenged by academics and strategists such as Kevin P. Coyne and Somu Subramaniam who have stated that three dubious assumptions underlie the forces: Other criticisms include: