Porter's five forces: how to read the competition in your industry

Why revisit Porter's model in B2B

The question we hear most often from leadership teams at manufacturing and service companies sounds familiar: "we know our competitors, but we don't know why margins are falling despite growing revenue." The answer rarely lies in a competitor's price list. Far more often it sits in the structure of the industry: in supplier power, in buyer power, in entry barriers that have just collapsed, or in a substitute product nobody took seriously.

That is exactly what the Porter's model is for, first described in 1979 in the pages of Harvard Business Review. Porter's five forces are not a tool for filling a slide in a strategy presentation. They are a way to structure the conversation about where in the value chain profit actually sits and which of those places are available to us. Without that diagnosis, any B2B marketing strategy rests on assumptions nobody has verified.

From our experience managing a large volume of marketing budgets in total, one thing stands out: companies that run an honest industry competitiveness analysis once a year fall into the price war trap less often. Not because they are braver. Because they know who they are really competing with.

Five forces that genuinely erode margin

Porter identified five forces shaping an industry's attractiveness. It is worth reading them not as a list of threats, but as a list of places where money flows out of our pocket.

1. Bargaining power of suppliers

The key question: how many suppliers of a critical component or service actually exist, and how easily can they be replaced? If a component comes from a single manufacturer and certification takes six months, the supplier sets the terms. If we have three comparable ones, we negotiate from a position of strength. In B2B this power is often hidden: sometimes the supplier is a specific specialist who is hard to replace.

2. Bargaining power of buyers

The more concentrated the buyer group and the lower the cost of switching suppliers, the greater the pressure on prices. A client who buys 40% of our output has real power. A client spread across hundreds of smaller orders, with high implementation and integration costs, is far less dangerous. It is worth calculating what percentage of revenue comes from the three largest buyers. That single number says more than the entire sales department.

3. Threat of new entrants

Entry barriers are not just capital. They are also certifications, know-how, relationships, framework contracts, and switching costs on the client side. An industry where entry costs several million and two years of formalities is structurally safer than one where a website and three salespeople are enough. It is worth asking the reverse question: if we were entering our own industry today, what would stop us?

4. Threat of substitutes

A substitute is not the same service from another company. It is a different solution to the same client problem. For a supplier of machine components, a substitute might be imports from Asia, but also a change in the client's production technology that eliminates that component. For a marketing agency, a substitute is an in-house marketing department, a freelancer, and increasingly an AI tool handling part of the tasks. Substitutes rarely attack head-on. They nibble away at the budget piece by piece.

5. Rivalry among existing players

This is the force companies see most clearly, because it shows up in tenders and proposals. What matters, however, is the market growth rate, the level of fixed costs, and the differentiation of the offer. In a growing market there is room for everyone. In a stagnant market competition shifts to price, and price eats margin.

How to conduct an industry competitiveness analysis step by step

The process below works for companies from a dozen or so to several hundred people. It does not require an external consultant or weeks of work. It does, however, require honesty in assessments.

Step 1: define the industry narrowly

"Industry" or "B2B services" is too broad. An industry is a group of companies that a customer considers in a single purchasing basket. If the customer compares us with a supplier from a completely different category, that is a signal that we are dealing with a substitute, not a competitor.

Step 2: rate each force on a scale of 1-5

It is about discipline. A rating of 5 means the force is very high and genuinely takes away our margin. A rating of 1 means we are on the safe side. It is worth having the sales department, production or operations, and management do the ratings separately. Discrepancies between these groups are the most valuable material for discussion.

Step 3: find evidence, not opinions

Every rating should be justified by data: the share of the three largest customers in revenue, the number of alternative suppliers, the time and cost of onboarding a new customer, the number of quote requests we lost solely on price. If there is no evidence, the rating is a hypothesis and should be marked as such.

Step 4: determine which forces are variable

The structure of an industry changes rarely, but individual forces can shift within a year. A new player entering, a change in regulations, the emergence of technology that lowers the barrier to entry. It is worth marking which forces we assess as stable and which as growing.

From diagnosis to decision: what to do with the results

An analysis that ends on a slide has no value. Porter's five forces translate into concrete marketing and sales decisions. A few typical conclusions:

• High buyer power means we need to build switching costs. In B2B this is done through process integration, framework agreements, client-side training, and relationship building at multiple levels of the organization, not just at the buyer level.
• High supplier power is an argument for communicating value, not price. If we do not control cost, we must control perceived value.
• Low barriers to entry signals that advantage must be built on brand and relationships, because technology and price will be copied within quarters.
• Growing threat of substitutes requires work on the category, not the product. We need to convince the market that the problem is worth solving with our type of solution at all.

In practice, these conclusions translate into decisions about what we invest in marketing: awareness, proof (case studies, certifications, references), channels reaching new decision-making groups, or defending existing customers. This is exactly the moment when industry competitiveness analysis stops being an intellectual exercise and becomes the foundation of a B2B marketing strategy.

In the digital world, strategy has ceased to be a linear process and has become a highly interactive process embedded in the context of vision, tactics, and finance. Nevertheless, companies must still respect the fundamental laws of gravity of good strategy, including determining where money is actually made (Digital Stractics, ch. 8).

This sentence summarizes the role of Porter's model well. It is used to determine where money is made in the industry structure and which of those places are available to us.

The most common mistakes in Porter's five forces analysis

In projects we have conducted for over 60 companies, the same missteps repeat.

Analysis done once and shelved

Industry structure changes slowly, but it does not stand still. Once a year, when planning the budget, it is worth revisiting the assessments and checking which forces have shifted. This takes a few hours, not weeks.

Confusing a competitor with a substitute

Companies often monitor direct rivals, only to lose to a completely different category of solution. It is worth regularly asking customers what else they considered before choosing us. The answers can be surprising.

Assessments made by one person

The perspective of sales, production, and management differs systematically. Sales sees the power of buyers, production sees the power of suppliers, management sees rivalry. Only by combining these three views do you get the full picture.

No link to the budget

If the analysis shows that substitutes are the biggest threat, yet the entire marketing budget goes into a price war with direct competitors, then the analysis did not influence decisions. At the end, it is worth asking: what exactly are we changing in the plan for the next two quarters.

Porter's five forces does not give a ready answer for what to do. It gives an organized set of questions that must be answered before spending more money on a campaign. In B2B, where sales cycles are long and the cost of a mistake is high, this order matters.