How Porter’s Five Forces Can Help Small Businesses Analyze the Competition

Use this tool to determine how profitable a business may be compared with other businesses in the industry.

By Marci Martin, Senior Writer | Editor Reviewed: Adam Uzialko, Senior Editor
Business News Daily | Updated November 6, 2025

Knowing who your competitors are and how their products, services and marketing strategies affect you is critical to your business’s survival. Whether you’re a Fortune 500 company or a small, local business, competition has a direct influence on your success.

One way to analyze your competition and understand your market position is to use Porter’s Five Forces model. Originally developed by Harvard Business School’s Michael E. Porter in 1979, the Five Forces model looks at five specific factors that determine whether a business can be profitable in relation to other businesses in the industry.

Using Porter’s Five Forces and other analytics models will help you understand where your company fits in the industry landscape.

Understanding Porter’s Five Forces model

Porter’s Five Forces model is a competitive analysis method that’s considered a macro tool in business analytics. It looks at the industry’s economy as a whole; in contrast, a SWOT analysis is a microanalytical tool that focuses on a specific company’s data and analysis.

“Understanding the competitive forces, and their underlying causes, reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition (and profitability) over time,” Porter wrote in a 2008 Harvard Business Review article. “A healthy industry structure should be as much a competitive concern to strategists as their company’s own position.”

Porter theorized that understanding the competitive forces at play and the overall industry structure is crucial for effective, strategic decision-making and the development of a compelling competitive strategy for the future.

Here are the five forces in Porter’s model:

1. Competitive rivalry

This force examines marketplace competition intensity. It considers the number of existing competitors and what each one can do. Rivalry competition is high when these conditions are met:

• Multiple businesses offer similar products or services.
• The industry is growing.
• Consumers can easily switch to a competitor’s offering for little cost.

When rivalry competition is high, advertising and price wars ensue, which can hurt a business’s bottom line. Digital transformation has intensified competitive rivalry across industries, with 93 percent of companies adopting a digital-first strategy, according to a 2023 study by Foundry. That means competition is fierce, and those who fail to embrace technological innovation risk operating from a competitive disadvantage.

2. The bargaining power of suppliers

This force analyzes a supplier’s power and control over price increases. When a B2B vendor has extensive control over pricing, their client business’s profit margins can suffer.

This force also assesses the available number of suppliers of raw materials and other resources. The fewer suppliers in the supply chain there are, the more power they have. Businesses are in a better position when there are many suppliers. Recent supply chain disruptions have highlighted this dynamic, even as they’ve declined. The 2024 Federal Reserve Small Business Credit Survey found that 29 percent of small businesses still experienced supply chain disruptions, with those dependent on single suppliers facing the most severe impacts.

3. The bargaining power of customers

This force examines consumer power and its effect on pricing and quality. Consumers have power when multiple sellers offer comparable products because they can easily switch to another seller. Conversely, buying power is low when consumers depend heavily on…[MORE]

+

To read the entire article, visit the Business News Daily website, via: How Porter’s Five Forces Can Help Small Businesses Analyze the Competition