Most documents titled “Porter’s Five Forces analysis” are records of a discussion among four people from the strategy department, supplemented with a few sentences from an industry article. The framework is filled in, the slide looks professional, but it does not contain a single value that could be verified, replicated a year later, and compared. The difference between this kind of workshop exercise and a research project is that, in a research project, each of the five forces is assigned indicators, data sources, and a measurement method.
When does Porter’s Five Forces analysis require a research project rather than a workshop?
Porter’s model was designed as a tool for structuring thinking about industry structure: the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, the threat of substitution, and the intensity of rivalry within the sector. However, the framework itself does not include measurement instructions. In practice, this gap is filled by the team’s beliefs – which is precisely why Porter’s Five Forces analysis so often ends up as a collection of statements such as “suppliers have considerable power over us,” without indicating the basis on which this assessment was made.
Moving from a workshop to a research project makes sense in several specific situations. The first is when conclusions from Porter’s model are to be included in a document read by people outside the team – the management board, supervisory board, or funding institution. In that case, every claim should have a source. The second situation is an analysis of an industry in which the team has not worked for years: a new segment, a new geographic market, or an adjacent sector. There is no basis for expert intuition, yet it usually fills the worksheet. The third is the need for repeatability – if industry structure is to be monitored regularly, descriptive assessments are insufficient because they make it difficult to determine whether suppliers’ bargaining power is increasing or decreasing.
The key change is to reframe each of the five forces from an evaluative question (“is this force high?”) into a research question (“what observable phenomena indicate the level of this force, and where can data on them be obtained?”). The framework then ceases to be a matrix filled with opinions and becomes a list of hypotheses to test. This distinction has direct operational consequences: the project gains a questionnaire, a respondent list, a desk research plan, and triangulation criteria.
How can each of the five forces be operationalized? Indicators, sources, methods
Operationalization involves breaking down each force into observable indicators and assigning a data collection method to each of them. The framework below works well as a starting point in research projects – to be adapted to the specifics of the industry.
Bargaining power of suppliers
Suppliers’ bargaining power can be measured through the structure of the supply market and actual purchasing behavior. Indicators worth collecting include supplier base concentration (what share of purchases goes to the largest suppliers), the number of available alternative suppliers that meet technical requirements, the frequency and scale of price changes initiated by the supply side, contract length and terms, switching costs for moving to another supplier (technical qualification, certification, downtime), and the share of a given component in the cost structure.
Data sources include in-depth interviews with procurement managers on the buyer side, interviews with suppliers (the other side of the same relationship often describes it differently), data from the procurement systems of companies participating in the study, commercial registers and suppliers’ financial statements, import and tariff data, and tender notices. In B2B research, the most common approach is in-depth interviews (IDIs) supplemented by a short quantitative module among a broader group of buyers.
Bargaining power of buyers
On the buyer side, measurable factors include buyer concentration (the share of the largest customers in revenue), buyers’ level of price knowledge, the availability of comparative information, willingness to switch suppliers, actual customer churn, the frequency of discount negotiations and their outcomes, and price sensitivity. The last indicator can be measured through declarative research, for example using the Van Westendorp technique, or through a choice experiment such as a conjoint test, rather than asking respondents directly whether price is important to them.
Sources include quantitative research conducted with a sample of customers and competitors’ customers, transaction data, analysis of requests for proposals, mystery shopping in sales channels, and monitoring of prices and promotions.
Threat of new entrants
Here, the focus of measurement is entry barriers and the actual dynamics of market entry. Indicators include the number of new entities registering business activity under a given PKD code in successive periods, treated as a proxy for entry dynamics; the number of entrants that remain in the market after two to three years; the minimum scale required for profitability; required investment outlays; regulatory and licensing requirements; the accessibility of distribution channels to a new entity; and the strength of established brands’ recognition.
Sources include business registers, KRS and CEIDG databases, patent registers, regulatory documentation, industry reports on funding rounds, and expert interviews with people who have attempted to enter a given industry or observed such entry. Registry data require careful interpretation: a PKD code may be broad, and a newly registered entity does not necessarily represent a new participant in the market being analyzed. Research into distribution accessibility can also be valuable: asking retail chains or integrators about the conditions for accepting a new supplier provides more robust information about the barrier than self-assessment.
Threat of substitution
Substitution is often a neglected element of Porter’s model because it requires looking beyond the boundaries of the industry as defined by its own participants. Measurable indicators include the relationship between the price and utility of a substitute versus the core product, switching costs for the user, awareness of the substitute in the target group, stated and observed willingness to switch, and the pace of adoption of alternative solutions.
Methodologically, demand-side research is particularly useful here: asking users about the range of ways in which they meet a given need (job to be done), rather than about preferences toward a predefined product category. This can be supplemented with analysis of search data, monitoring of adjacent markets, and interviews with users who have already switched to an alternative solution.
Intensity of rivalry
Rivalry is described by the number and market shares of players, concentration indices, the pace of changes in market shares over time, price dynamics and the depth of promotions, the intensity of marketing activity, capacity utilization levels, offer differentiation, and the pace of new product launches. Sources include panel data and retail audit data where available, financial statements, price and communications monitoring, desk research of industry materials, and interviews with trade intermediaries who observe the behavior of multiple players simultaneously.
As Hume’s Institute experts point out, a Porter’s model filled solely with the team’s opinions may primarily confirm what the team already believed before sitting down to conduct the analysis – the framework then generates no new knowledge and merely gives existing beliefs an organized graphic form. This is why, in research projects, it is worth recording the team’s preliminary assessments before fieldwork begins and comparing them with the results. Discrepancies may be the most valuable part of the report.
A practical sequence of work for this type of Porter’s Five Forces analysis is as follows: defining industry boundaries, specifying indicators for each of the five forces, inventorying secondary sources, identifying information gaps, designing primary research to fill those gaps, fieldwork, triangulation, and documenting assessments together with their confidence level and source.
What mistakes most often undermine Porter’s Five Forces analysis?
The first and most costly mistake is an imprecise definition of industry boundaries. Porter’s model describes the structure of a specific sector, not a “market” understood intuitively. If the analysis simultaneously covers manufacturers, distributors, and integrators without distinguishing between stages of the value chain, the interpretation of suppliers’ and buyers’ bargaining power becomes ambiguous because the same entity may play two roles. Boundaries must be defined before data collection begins – in terms of product, geography, value chain stage, and customer segment.
The second mistake is mixing levels of analysis: describing the position of one’s own company and the structure of the entire industry in the same worksheet. Porter’s model describes the conditions under which all sector participants operate. The statement “our suppliers give us favorable terms, so suppliers’ power is low” is a methodological error because it concerns an individual relationship, not the structure.
The third is one-sided sources. Bargaining power is a relationship, so measuring it requires, where possible, data from both sides. Research involving buyers only may produce a picture distorted by the perspective of one party to the relationship. Triangulating it with interviews on the supply side and data from documents makes the picture more realistic.
Other pitfalls worth considering when planning this type of project include:
- Static perspective. A one-time snapshot does not show the direction of change. Indicators should be collected in a time series, even if only retrospectively from financial and registry data.
- Too many indicators. Several dozen metrics per force means a project that may be difficult to complete efficiently. In practice, three to five industry-specific indicators are often selected for each force.
- Assessment without a scale. Labels such as “high / medium / low” without defined thresholds are not comparable across forces or study waves. Thresholds should be set before the data analysis.
- Overlooking substitutes outside the category. Industry participants may fail to see substitutes that do not resemble their product. Therefore, data on substitution should be collected primarily from users and then supplemented with analysis of competitors and adjacent markets.
- Failure to document uncertainty. Each conclusion should indicate whether it is based on hard data, respondent declarations, or expert assessment in the absence of data.
A separate issue is the limitations of the framework itself. Porter’s model does not fully account for the specifics of industries with strong network effects, platform markets, or sectors in which value is created in complementary ecosystems. In such cases, Porter’s Five Forces analysis is sometimes supplemented with value chain mapping or ecosystem analysis – not as a replacement, but as a second descriptive layer. The framework itself remains primarily a tool for describing structure rather than a standalone forecasting tool: it can show the current state and the observed direction of change, but it does not predict the future behavior of market players.
What should be included in a brief for an industry structure study?
If Porter’s Five Forces analysis is to be outsourced or conducted internally with the involvement of a research team, the brief should resolve the issues that later determine the usefulness of the results:
- Industry definition. Product scope, geographic scope, value chain stage, and customer segments included in and excluded from the analysis.
- List of indicators for each force. What is to be measured for each of the five forces and what level of accuracy is sufficient for the decision-making objective.
- Division between secondary and primary data. Which indicators can be covered through desk research and which require fieldwork.
- Sample structure. Who should be respondents on each side of the relationship: buyers, suppliers, distributors, industry experts, and regulators.
- Assessment scales and thresholds. How indicators will be translated into an assessment of the force’s level and who sets the thresholds.
- Output format. Whether the output should be a one-time report or a set of indicators for ongoing monitoring.
- Documentation of sources. A requirement to assign a source and confidence level to each conclusion.
Such a brief changes the nature of the entire undertaking: the assessment of industry attractiveness no longer relies solely on discussion and can instead be based on measured indicators that can be presented, challenged, and updated. This allows Porter’s model to serve as a research tool rather than merely a presentation format.
Frequently asked questions
What does Porter’s Five Forces analysis involve?
Porter’s Five Forces analysis involves describing industry structure through five dimensions: the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, the threat of substitution, and the intensity of rivalry among existing sector participants. From a research perspective, each of these dimensions is broken down into observable indicators and measured using secondary data and primary research. The framework structures the analysis, but it does not itself define measurement methods – that is the role of the research project.
What data are used to measure bargaining power?
Bargaining power is measured using indicators of market structure and transactional behavior: concentration on a given side of the relationship, the number of viable alternatives, switching costs, the share of a given item in the cost structure, contract terms, and actual outcomes of price negotiations. Data are obtained from registers and financial statements, procurement and transaction systems, and in-depth interviews conducted on both sides of the relationship. Measurement from one side of the relationship may be affected by that side’s perspective, which is why triangulation is an important element of rigorous research.
How does Porter’s analysis differ from competitor analysis?
Competitor analysis describes specific entities: their offers, prices, market shares, communications, and resources. Porter’s model describes the structural conditions under which all industry participants operate, including those that have not yet entered the industry, as well as suppliers and buyers outside the sector. In research practice, competitor analysis provides data for one of the five forces – the intensity of rivalry – while the other four require separate sources and often separate respondent samples.
If industry structure is to be described with indicators rather than team assessments, it is worth starting by defining the scope of measurement and the available data sources. Ask about a research-based industry structure analysis – Hume’s Institute will help design measurement for each of the five forces and select methods suited to the specifics of the sector.