Your product is better than competitors. Your features are superior. Your pricing is competitive. Yet deals still get stuck, prospects hesitate, and market penetration is slower than expected.
You're focusing on direct competitors and missing the broader forces that shape your market. Competitive dynamics involve more than feature comparisons between similar products.
Porter's Five Forces, developed by Michael Porter at Harvard Business School, analyzes the competitive intensity and attractiveness of a market by examining five key forces. For product marketers, this framework reveals why some markets are profitable and others aren't, where competitive threats actually come from, and how to position for sustainable advantage.
The Five Forces Explained
Porter identified five forces that determine competitive intensity and market profitability:
Threat of new entrants: How easy is it for new competitors to enter your market? Low barriers mean constant new competition. High barriers protect incumbents.
Bargaining power of suppliers: How much power do your suppliers have over you? High supplier power means they can raise prices or limit access to critical inputs.
Bargaining power of buyers: How much power do your customers have over you? High buyer power means they can demand lower prices or better terms.
Threat of substitutes: How easily can customers achieve similar outcomes using different solutions? High substitution threat means customers have alternatives beyond direct competitors.
Competitive rivalry: How intense is competition among existing players? High rivalry means price wars, high marketing costs, and compressed margins.
The collective strength of these forces determines whether markets are attractive (profitable with sustainable advantages possible) or unattractive (commoditized with thin margins and constant threats).
Product marketers who understand these forces can position strategically, identify true competitive threats, and build defensible market positions.
Force 1: Threat of New Entrants
New entrants increase competition, pressure prices, and force existing players to defend market share. But not all markets face equal threat from new entrants.
Barriers to entry determine this threat level:
Capital requirements: If entering your market requires massive upfront investment—building infrastructure, obtaining certifications, establishing distribution—few competitors can afford entry. This protects incumbents.
Software markets often have low capital requirements (anyone can build an app). But infrastructure businesses (data centers, logistics networks) have high barriers.
Economies of scale: If per-unit costs decrease significantly with volume, large incumbents have cost advantages new entrants can't match. This creates natural barriers.
Switching costs: If customers face high costs to switch vendors—data migration, retraining, workflow disruption—they're less likely to try new entrants. This protects existing vendors.
Access to distribution: If distribution channels are controlled by a few players or require long relationship-building, new entrants struggle to reach customers.
Regulatory barriers: Industries requiring licenses, certifications, or regulatory approval (healthcare, financial services, aviation) have natural barriers that limit new entrants.
Brand and reputation: Established brands have trust that new entrants lack. In markets where trust and track record matter (enterprise software, professional services), this creates barriers.
Force 2: Bargaining Power of Suppliers
Suppliers have power when they can raise prices, reduce quality, or limit availability of critical inputs without losing your business.
Factors that increase supplier power:
Supplier concentration: If few suppliers provide critical inputs and many buyers need them, suppliers have power. If many suppliers compete for your business, you have power.
Switching costs: If changing suppliers is expensive or disruptive, suppliers have power to raise prices.
Forward integration threat: If suppliers could easily start competing with you directly, they have leverage in negotiations.
Input importance: If the supplier's input is critical to your product and has no substitutes, they have power.
For software companies, key suppliers include:
- Cloud infrastructure providers (AWS, Azure, GCP)
- Third-party data providers
- Integration partners whose APIs you depend on
- Security or compliance certification bodies
For product marketers, high supplier power means:
- Costs may increase unpredictably, affecting pricing strategy
- Quality or availability risks that affect customer satisfaction
- Dependence on external parties for product capabilities
PMM response: Build relationships with multiple suppliers to reduce dependence. Develop in-house capabilities for critical functions. Create supplier redundancy where possible.
Force 3: Bargaining Power of Buyers
Buyers have power when they can demand lower prices, higher quality, or better service while threatening to switch vendors.
Factors that increase buyer power:
Buyer concentration: If a few large customers represent most of your revenue, they have leverage to demand concessions. If you have many small customers, no single customer has much power.
Purchase volume: Large customers who buy significant volumes can negotiate better terms.
Product standardization: If your product is similar to competitors (commoditized), buyers can easily switch, giving them power. Differentiated products reduce buyer power.
Price sensitivity: If your product represents a large portion of buyer budgets, they're more price-sensitive and have more incentive to negotiate hard.
Backward integration threat: If buyers could develop your solution in-house, they have leverage in negotiations.
Information availability: When buyers have perfect information about alternatives, pricing, and capabilities, they can negotiate more effectively.
High buyer power manifests as:
- Aggressive price negotiations
- Demand for custom features or terms
- Threats to build in-house or switch vendors
- Procurement processes that commoditize your offering
Force 4: Threat of Substitutes
Substitutes are different products that serve the same need. They're not direct competitors but alternative approaches to solving the same problem.
For Slack, direct competitors are Microsoft Teams and Discord. Substitutes are email, project management tools, or in-person meetings. Different solution, similar outcome.
Factors that increase substitution threat:
Performance-price trade-off: If substitutes offer acceptable performance at lower prices, customers switch. The substitute doesn't need to be better, just good enough and cheaper.
Switching costs: Low switching costs make substitution easy. High switching costs protect you even if substitutes exist.
Customer propensity to substitute: Some markets have high inertia (enterprise software with long contracts). Others have low inertia (consumer apps).
Common substitutes product marketers overlook:
- Manual processes: Spreadsheets, email, and meetings substitute for many software products
- Generic tools: Using general-purpose tools (Google Docs, Excel) instead of specialized software
- In-house solutions: Building custom tools rather than buying commercial products
- Doing nothing: Not solving the problem at all if pain isn't severe enough
The highest substitution threat comes from "good enough" alternatives that are free or much cheaper. Your product might be technically superior, but if substitutes meet 70% of needs at 10% of cost, many customers choose the substitute.
PMM response: Position against substitutes, not just direct competitors. Show why manual processes fail at scale. Demonstrate hidden costs of in-house solutions. Prove that partial solutions create bigger problems than they solve.
Force 5: Competitive Rivalry
Rivalry among existing competitors determines how aggressively companies compete on price, features, marketing, and sales.
Factors that intensify rivalry:
Number of competitors: More competitors means more rivalry. Concentrated markets (few large players) can be less competitive than fragmented markets (many small players).
Market growth rate: Slow-growth markets intensify rivalry as competitors fight for share. Fast-growth markets reduce rivalry because everyone can grow.
Exit barriers: If companies can't easily leave the market (high fixed costs, specialized assets, emotional attachment), they stay and compete even when unprofitable.
Product differentiation: Commoditized products intensify rivalry. Differentiated products reduce it.
Brand identity: Strong brands reduce rivalry by creating customer loyalty. Weak brands lead to pure price competition.
Information transparency: When customers can easily compare offerings, rivalry increases as vendors compete primarily on observable metrics like price and features.
High rivalry leads to:
- Price wars that compress margins
- Feature arms races that increase costs
- High customer acquisition costs
- Aggressive sales and marketing tactics
- Focus on stealing competitors' customers rather than expanding market
PMM response: Differentiate clearly to reduce direct comparison. Focus on underserved segments where rivalry is lower. Build brand moats through thought leadership and community. Create unique value that competitors can't copy.
Using Five Forces for Market Analysis
Apply this framework when evaluating market opportunities or developing competitive strategy.
Step 1: Assess each force as high, medium, or low based on the factors above.
Step 2: Determine overall market attractiveness. Markets with multiple high forces are less attractive (intense competition, low profitability). Markets with multiple low forces are more attractive.
Step 3: Identify which forces most threaten your position. Focus strategic efforts on mitigating your biggest vulnerabilities.
Step 4: Find opportunities to improve your position. Can you increase switching costs? Create barriers to new entrants? Reduce buyer power through differentiation?
Example analysis for a B2B SaaS product:
- Threat of new entrants: HIGH (low capital requirements, easy to build software)
- Supplier power: MEDIUM (dependent on cloud providers but multiple options exist)
- Buyer power: HIGH (customers can easily compare alternatives and switch)
- Threat of substitutes: MEDIUM (manual processes work for smaller customers)
- Competitive rivalry: HIGH (many competitors, slow market growth)
This market is unattractive overall. Strategy must focus on creating differentiation, building switching costs, and targeting segments where forces are more favorable.
How Product Marketers Apply Five Forces
Positioning: Understand which forces most affect your customers' decisions. If substitution threat is high, position against manual processes, not just competitors.
Messaging: Address the forces customers care about. If buyer power is high because they have many options, emphasize switching costs and unique capabilities.
Competitive intelligence: Monitor all five forces, not just direct competitors. Track new entrants, substitute solutions, and changes in buyer or supplier dynamics.
Market selection: Use Five Forces to evaluate which markets or segments to enter. Choose markets where forces are favorable or where you have unique capabilities to mitigate unfavorable forces.
Product roadmap input: Build features that strengthen your position against key forces. If threat of new entrants is high, prioritize features that create switching costs or require significant investment to replicate.
Limitations of Five Forces
Porter's framework has limitations:
Static analysis: Five Forces is a snapshot. Markets evolve. Forces that are low today may be high tomorrow. Revisit the analysis regularly.
Doesn't account for complementary products: In platform businesses, complementary products (apps on iOS, extensions for Chrome) strengthen market position. Five Forces doesn't capture this.
Assumes rational actors: The framework assumes companies act rationally. In reality, companies often compete irrationally due to ego, emotional attachment, or misaligned incentives.
Industry-level focus: Five Forces analyzes entire industries. Individual companies can create positions that defy industry-level forces through unique strategies.
When to Use Five Forces
Use this framework when:
- Evaluating whether to enter a new market
- Understanding why margins are low or competition is intense
- Developing long-term competitive strategy
- Explaining market dynamics to executives or investors
- Identifying strategic priorities for product development
Don't use it when:
- You need tactical competitive intelligence on specific competitors
- You're making short-term positioning decisions
- Your market is too new to analyze forces reliably
Five Forces is strategic analysis, not tactical competitive positioning. It reveals structural market dynamics, not specific go-to-market tactics.
Understanding these forces helps product marketers see beyond direct feature comparisons to the broader dynamics that determine market success. That perspective turns reactive competitive responses into proactive strategic positioning.