For example, to switch from coffee to tea doesn’t cost anything, unlike switching from car to bicycle. This force is the major determinant on how competitive and profitable an industry is.In competitive industry, firms have to compete aggressively for a market share, which results in low profits.
This force is especially threatening when buyers can easily find substitute products with attractive prices or better quality and when buyers can switch from one product or service to another with little cost.
The stronger competitive forces in the industry are the less profitable it is.
An industry with low barriers to enter, having few buyers and suppliers but many substitute products and competitors will be seen as very competitive and thus, not so attractive due to its low profitability.
Rivalry among competitors is intense when: Although, Porter originally introduced five forces affecting an industry, scholars have suggested including the sixth force: complements.
Complements increase the demand of the primary product with which they are used, thus, increasing firm’s and industry’s profit potential.