of sustainable prices. How much? It is these economic relationships that sharpen the strategist’s understanding of industry competition.

Many elements of the five forces can be quantified: the percentage of the buyer’s total cost accounted for by the industry’s product (to understand buyer price sensitivity); the percentage of industry sales required to fill a plant or operate a logistical network of efficient scale (to help assess barriers to entry); the buyer’s switching cost

How much? Strong suppliers drive up input costs. How much? Buyer power lowers prices or elevates the costs of meeting buyers’ demands, such as the requirement to hold more inventory or provide financing. How much?

The point of industry analysis is not to declare the industry attractive or unattractive but to understand the underpinnings of competition and the root causes of profitability. As much as possible, analysts should look at industry structure quantitatively, rather than be satisfied with lists of qualitative factors.

Position Your Company Where the Forces Are Weakest

revolutionary 1979 HBR article, four additional competitive forces can hurt your prospective profits: • Savvy customers can force down prices by playing you and your rivals against one another. • Powerful suppliers may constrain your profits if they charge higher prices. • Aspiring entrants, armed with new capacity and hungry for market share, can

And you naturally keep tabs on your established rivals. But as you scan the competitive arena, are you also looking beyond your direct competitors? As Porter explains in this update of his

You know that to sustain long-term profitability you must respond strategically to competition.

The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulation. The most salient force, however, is not always obvious.