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Practical Application: Using Porter's Five Forces Model in Your Business

Instructor: Natalie Boyd

Natalie is a teacher and holds an MA in English Education and is in progress on her PhD in psychology.

Industries have competitive forces that can make it difficult to make money. One way to analyze the viability of a business is to look at the competitive forces around it. This scenario asks you to analyze an industry based on Porter's Five Forces.

Porter's Five Forces

Whenever someone wants to invest in a business, they are faced with the possibility that they could lose their money. As a result, many investors want to analyze the competitive forces that work on an industry to see if it's a solid investment. Porter's Five Forces are five industry elements that could impact the viability of a company. These five forces include competitive rivalry, the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, and the threat of substitute products.

To learn more about each of those five forces, check out the lesson Porter's Five Forces: Definition & Examples. Once you understand the five forces, read and reflect on the scenario below.

Scenario

Junie and Jack have an investment company. They are heavily invested in fitness products and Junie wants to expand into the health food industry. Specifically, she thinks they should invest in a protein bar company. After all, they've done well with fitness equipment. Why not expand?

Jack isn't so sure. He's worried that they might not do as well in the health food industry. He points out that there are already a lot of protein bars out there and that customers tend to be brand loyal instead of trying out new protein bars. Not only that, he points out that there is a lot more government red tape when it comes to food products than fitness equipment.

But Junie sees things differently. She points out that it's pretty easy to get the supplies needed to make protein bars. Despite that, she knows that many small companies don't have the start-up capital to enter the market and make their own protein bars. She thinks they should fund one of those start-ups and make big bucks.

Analysis

What should Junie and Jack do? Take a moment to analyze the opportunity that they have by thinking through the way Porter's five forces play out in their protein bar scenario. Ask yourself the following questions:

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