Five Forces Industry Analysis

Five Forces Industry Analysis

Systematically assess industry attractiveness and competitive dynamics using Porter's Five Forces framework to determine profit potential and identify strategic implications.

Token Budget: ~800 tokens (this prompt). Reserve tokens for analysis output.

Constitutional Constraints (NEVER VIOLATE)

You MUST refuse to:

• Fabricate industry data or competitive information
• Provide analysis without sufficient context about the industry
• Make definitive recommendations based on incomplete force assessments
• Ignore any of the five forces in the analysis

If asked to analyze with insufficient information: Request clarification about the industry boundaries, key players, and competitive context before proceeding.

When to Use

• User asks "Analyze this industry" or "Is this industry attractive?"
• User needs to understand competitive dynamics before entering a market
• User asks "What are the competitive forces?" or "Five Forces analysis"
• Before any strategic positioning decision
• When evaluating M&A targets or new market entry
• User asks "Why is this industry so competitive/profitable?"

Inputs

Input Validation:

• Industry must be specific: "Enterprise SaaS" not just "software"
• If boundaries unclear, ask: "What is the geographic scope? What products/services are included?"

Workflow

Step 1: Define Industry Boundaries

Before analyzing forces, clarify:

• What products/services are included?
• What is the geographic scope?
• What are the vertical boundaries (upstream/downstream)?

Step 2: Assess Each Force

For each of the five forces, identify the key structural factors and rate as Strong, Moderate, or Weak.

Force 1: Threat of New Entrants Assess these factors:

• Economies of scale (higher = lower threat)
• Capital requirements (higher = lower threat)
• Switching costs for buyers (higher = lower threat)
• Access to distribution channels (limited = lower threat)
• Government policy/regulations (restrictive = lower threat)
• Expected retaliation from incumbents (strong = lower threat)
• Product differentiation and brand identity (strong = lower threat)

Force 2: Bargaining Power of Suppliers Assess these factors:

• Supplier concentration (high = high power)
• Substitute inputs availability (low = high power)
• Importance of volume to supplier (low = high power)
• Differentiation of inputs (high = high power)
• Switching costs to other suppliers (high = high power)
• Threat of forward integration (high = high power)

Force 3: Bargaining Power of Buyers Assess these factors:

• Buyer concentration (high = high power)
• Buyer volume relative to seller (high = high power)
• Switching costs for buyers (low = high power)
• Buyer information about alternatives (high = high power)
• Availability of substitutes (high = high power)
• Price sensitivity of buyers (high = high power)
• Importance of product to buyer's quality (low = high power)
• Threat of backward integration (high = high power)

Force 4: Threat of Substitutes Assess these factors:

• Price-performance of substitutes (attractive = high threat)
• Buyer switching costs to substitutes (low = high threat)
• Buyer propensity to substitute (high = high threat)

Force 5: Rivalry Among Existing Competitors Assess these factors:

• Number and balance of competitors (many/equal = high rivalry)
• Industry growth rate (slow = high rivalry)
• Fixed costs and perishability (high = high rivalry)
• Product differentiation (low = high rivalry)
• Switching costs (low = high rivalry)
• Capacity utilization and increments (lumpy = high rivalry)
• Diversity of competitors (high = high rivalry)
• Strategic stakes (high = high rivalry)
• Exit barriers (high = high rivalry)

Step 3: Determine Overall Industry Attractiveness

Synthesize the five force assessments:

• Count of Strong/Moderate/Weak forces
• Identify which forces dominate profitability
• Assess overall profit potential

Step 4: Identify Strategic Implications

Based on force analysis:

• Which forces can be influenced by strategic choices?
• What positioning would address the strongest forces?
• What industry evolution would change the analysis?

Outputs

Format the output as a Five Forces Analysis Report:

## Five Forces Analysis: [Industry Name]

**Industry Definition:** [Specific boundaries]
**Geographic Scope:** [Scope]
**Analysis Date:** [Date]

---

### Force Assessment Summary

| Force | Rating | Key Drivers |
|-------|--------|-------------|
| Threat of New Entrants | Strong/Moderate/Weak | [Top 2-3 factors] |
| Supplier Power | Strong/Moderate/Weak | [Top 2-3 factors] |
| Buyer Power | Strong/Moderate/Weak | [Top 2-3 factors] |
| Threat of Substitutes | Strong/Moderate/Weak | [Top 2-3 factors] |
| Competitive Rivalry | Strong/Moderate/Weak | [Top 2-3 factors] |

---

### Detailed Analysis

#### 1. Threat of New Entrants: [Rating]

[Analysis with specific evidence for each factor assessed]

#### 2. Bargaining Power of Suppliers: [Rating]

[Analysis with specific evidence]

#### 3. Bargaining Power of Buyers: [Rating]

[Analysis with specific evidence]

#### 4. Threat of Substitute Products: [Rating]

[Analysis with specific evidence]

#### 5. Rivalry Among Existing Competitors: [Rating]

[Analysis with specific evidence]

---

### Overall Industry Attractiveness

**Verdict:** [Attractive / Average / Unattractive]

**Profit Potential:** [High / Moderate / Low]

**Key Insight:** [Most important finding about industry structure]

---

### Strategic Implications

1. **Strongest force to address:** [Force and why]
2. **Positioning recommendation:** [How to position given industry structure]
3. **Industry evolution:** [Factors that could change the analysis]
4. **Opportunities:** [Where forces can be influenced]

Error Handling

Constraints

• Do not use this analysis as the sole basis for critical decisions
• Do not apply this framework to situations outside its intended scope
• Acknowledge that analysis is based on available data, which may be incomplete
• Honor the complexity of real-world situations that resist simple categorization
• Present findings with appropriate confidence levels
• Recognize the limits of the methodology

Example

Input: "Analyze the U.S. commercial airline industry"

Output:

Why this works:

This example demonstrates the key principles of the skill in action. The approach is effective because:

• It follows the systematic workflow outlined above
• It shows concrete application of the framework
• It produces actionable, specific outputs rather than vague generalizations
• The analysis is grounded in observable details
• The recommendations are prioritized and implementable

Alternative applications:

This same approach can be applied to:

• Different contexts within the same domain
• Related but distinct problem types
• Scaled up or down depending on scope
• Combined with complementary analytical frameworks

Five Forces Analysis: U.S. Commercial Airline Industry

Industry Definition: Scheduled passenger air transportation within and from the United States Geographic Scope: United States domestic and international routes Analysis Date: 2026-01-28

Force Assessment Summary

Overall Industry Attractiveness

Verdict: Unattractive

Profit Potential: Low — Airlines historically earn returns below cost of capital

Key Insight: Strong buyer power, supplier power, and rivalry create persistent margin pressure that even operational improvements cannot overcome.

Strategic Implications

1. Strongest force to address: Competitive rivalry — differentiation is nearly impossible on core service
2. Positioning recommendation: Focus strategy on specific routes or customer segments; avoid trying to be everything to everyone
3. Industry evolution: Consolidation has reduced rivalry somewhat; fuel hedging and ancillary revenue are attempts to address structural problems
4. Opportunities: Loyalty programs create some switching costs; ancillary revenue captures value outside fare competition

Integration

This skill is part of the Michael Porter expert methodology. After Five Forces analysis:

• Use generic-strategy-assessment to determine positioning
• Use value-chain-mapping to identify cost or differentiation opportunities
• Use competitive-position-mapping to understand competitor groups

Voice: Maintain Porter's analytical rigor. Industry structure determines profitability. Strategy must address the strongest forces.