What Is Porter's Five Forces and How to Apply It in a Thesis
What Is Porter's Five Forces?
Porter's Five Forces, also called the five competitive forces model, is an analytical framework for assessing an industry's attractiveness and competitive pressure. Michael Porter developed the model around five forces that affect a firm's ability to generate profits: rivalry among existing competitors, the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, and the threat of substitutes.
When you begin a research topic, you can use this model to answer a practical question: where is the business facing pressure, and how does that pressure affect business performance, competitiveness, or the intention to continue operating? The model is suitable for topics in strategy, retail, banking, logistics, tourism, e-commerce, and many service industries.
You need to distinguish an industry analysis framework from a quantitative model used to test hypotheses. Five Forces helps you identify groups of factors and possible directions of influence for further research. You still have to convert each factor into latent variables, items, a questionnaire, and a testable model. If you need to review the basic concepts, you can read what is a model and what is a theory.
Five Forces does not automatically produce the conclusion that an industry is good or bad. Each force has to be assessed in its specific context. Buyer power may be high in an industry with many suppliers, but low in an industry with specialized products and high switching costs.
Components of the model
You should examine the five forces together. If you only describe a few competitors or list the firm's strengths and weaknesses, the analysis becomes closer to a market description than an application of the model.
| Force | What to analyze | Suggested question for a questionnaire or dataset |
|---|---|---|
| Rivalry among existing competitors | The intensity of competition in price, quality, branding, distribution channels, and innovation speed | Does the firm have to compete frequently through prices or promotions? |
| Threat of new entrants | Capital, technology, branding, licensing, network, and customer-access barriers | Can a new firm enter this segment easily? |
| Bargaining power of suppliers | Dependence on raw materials, technology, platforms, personnel, or a group of suppliers | Can the firm replace its suppliers easily? |
| Bargaining power of buyers | The ability of customers to negotiate prices, demand services, or switch to another option | Do customers have many alternative choices? |
| Threat of substitutes | The extent to which another product or solution can satisfy the same need | Can customers switch to another solution at a low cost? |
In a thesis, define each component within the context of your research. For example, bargaining power of buyers in banking may relate to the ability to compare interest rates and switch banks. In e-commerce, this factor may relate to price transparency, the number of platforms, and buyers' switching costs.
You also need to decide on the unit of analysis. If respondents are employees of a firm, the questions should reflect the firm's perception of its competitive environment. If respondents are customers, factors such as buyer power or the threat of substitutes may be measured more directly. Choosing the wrong survey population means that the variables in the same model do not operate at the same level of analysis.
The original model and common extensions
The original model describes the competitive structure outside the firm. The five forces are not five departments and they are not five data-processing steps. They are five groups of pressures that can reduce the firm's ability to create value or change its competitive position.
When extending the model for a thesis, you can add factors that fit the research question, such as innovation capability, service quality, digital transformation, firm resources, or business performance. The added factor needs a theoretical reason and a suitable scale. Do not add it simply because the model contains too few variables.
A common approach is to treat the five forces as independent variables affecting competitiveness. Another approach is to make competitiveness a mediator, with the competitive forces affecting competitiveness and competitiveness then affecting business performance. If you study this transmission mechanism, distinguish clearly between a mediator and a moderator. The article what is a hypothesis can help you separate a question about the direction of an effect from a question about a moderating role.
Do not assign the five forces to a regression model simply because the model name contains the words “Five Forces”. Before designing the questionnaire, check three points: which variables genuinely appear in the research question, who has enough information to answer, and which outcome will be used to draw conclusions about the hypotheses.
When you build the research model, state clearly which part is Porter's analytical framework and which part is your study's extension. This presentation helps the committee see that you are applying the model rather than copying the same structure for every industry.
Common scales for each concept
Five Forces does not provide one fixed set of items that can be used for every topic. You need to find sources that fit your industry, country, survey population, and research objective. The table below is a conceptual map for starting the scale-design process. It is not a translated scale that has already been validated.
| Concept | What may be measured | Example item direction | Foundational sources to review |
|---|---|---|---|
| Rivalry among existing competitors | Competitive intensity, price competition, innovation speed, and number of competitors | Competition in the industry is increasing; the firm frequently has to adjust its prices | Michael Porter's Five Forces framework, industry sources, and relevant empirical studies |
| New entrants | Capital, branding, technology, distribution-channel, and regulatory barriers | New firms have difficulty reaching customers; the cost of entering the industry is high | The Five Forces framework and industry-context studies |
| Supplier power | Dependence, substitutability, and supplier concentration | The firm depends on a small number of suppliers; suppliers can increase prices | The Five Forces framework and scales used in the relevant industry |
| Buyer power | The ability to negotiate prices, price sensitivity, and switching costs | Customers can easily compare suppliers; customers can request preferential treatment | The Five Forces framework and customer-behavior studies |
| Substitutes | The number of other choices, similarity, and switching costs | Many other products meet the same need; customers can easily switch to another solution | The Five Forces framework and research on the industry under study |
| Competitiveness or business performance | Outcomes affected by the competitive environment | The firm maintains its position; the firm achieves its business objectives | Empirical studies that fit the dependent variable |
Use a consistent Likert scale for perception-based items, such as a scale ranging from strongly disagree to strongly agree. The Likert scale was introduced in Likert's foundational work (Likert, 1932). Keep each item short, measure one idea only, and use wording that respondents in the industry understand in the same way.
If you translate a scale from English yourself, retain the original version, the translated version, and the reason for each adjustment. Do not change “level of competition” into “competitive performance”, because the two concepts may differ. After preparing a draft, check the scale's reliability and validity using an appropriate procedure. A questionnaire is not automatically ready for analysis as soon as the wording is finished.
Applying the model to your topic
Suppose you are studying fashion retail firms in Vietnam. The research question is: how do competitive pressures affect firms' competitiveness? In that case, you could build five independent variables corresponding to Five Forces and one dependent variable, competitiveness.
The conceptual model could include rivalry among existing competitors, the threat of new entrants, supplier power, buyer power, and the threat of substitutes as factors affecting competitiveness. If the model contains many hypotheses, explain the direction of each effect using theory and context. For example, stronger competition usually creates pressure for firms, but it may also encourage innovation. You have to justify the direction of the effect. It cannot be inferred from the variable name alone.
A shortened version with four hypotheses could be written as follows:
- H1: The intensity of rivalry among existing competitors affects the competitiveness of fashion retail firms.
- H2: The threat of new entrants affects the competitiveness of fashion retail firms.
- H3: The bargaining power of suppliers affects the competitiveness of fashion retail firms.
- H4: The bargaining power of buyers affects the competitiveness of fashion retail firms.
If you want to include the threat of substitutes in the model, you can add H5 instead of leaving the omission unexplained. If you select only four forces because of questionnaire-length limits, state the selection criteria in the methodology chapter. You can also read the article on the research model to check the relationships among independent variables, the dependent variable, and the hypotheses.
How to write this in your thesis
You can adapt the following paragraph: “Based on Porter's Five Forces analytical framework, this study proposes that [the selected competitive pressures] affect [the dependent variable] in the context of [the industry or geographic area]. Hypotheses H1 to H[5] are developed to test the relationship between each competitive pressure and [the dependent variable].”
This is only a sentence template. Replace the bracketed sections with the exact variables, population, and context represented in your dataset. If your topic uses “business performance” instead of “competitiveness”, do not use the two terms interchangeably in the same chapter.
Testing the model with SPSS or SmartPLS
SPSS is suitable when you use survey data to test scale reliability, EFA, correlations, and linear regression. The process commonly begins with Analyze > Scale > Reliability Analysis, continues with Analyze > Dimension Reduction > Factor to run EFA, and then uses Analyze > Regression > Linear for the regression model.
In Reliability Analysis, select the items belonging to the same concept and check Cronbach's Alpha and Corrected Item-Total Correlation in the Item-Total Statistics table. When running EFA, pay attention to KMO and Bartlett's Test, Total Variance Explained, and Rotated Component Matrix. The following is illustrative output for the software tables you need to read. It is rare for EFA to give a clean matrix on the first pass. If you remove an item, record the reason and the results before and after rerunning the analysis.
SmartPLS is suitable when your model contains latent variables and many indicators, and your objective is to test relationships among constructs in PLS-SEM. Import the .csv file, drag the indicators onto constructs, connect the paths according to the hypotheses, and then run PLS-SEM Algorithm and Bootstrapping in SmartPLS 4.
When reading SmartPLS results, follow two stages. The first stage evaluates the measurement model using Outer Loadings, Construct Reliability and Validity, and Discriminant Validity. The second stage evaluates the structural model using Path Coefficients, R², f², VIF, and the bootstrapping results. Do not include CFI, TLI, or RMSEA in a SmartPLS paper, because those indices belong to CB-SEM evaluation.
The thresholds you use need to be placed in the correct context. Cronbach's Alpha at 0.7 or above is commonly considered acceptable (Nunnally, 1978), while an exploratory scale may consider a level from 0.6 according to (Hair et al., 2010). Corrected Item-Total Correlation at 0.3 or above is used in many studies (Nunnally and Bernstein, 1994). In PLS-SEM, CR at 0.7 and AVE at 0.5 or above are commonly reported benchmarks (Fornell and Larcker, 1981), HTMT should be below 0.85 or 0.90 depending on how conceptually close the constructs are (Henseler et al., 2015), and VIF below 5 is recommended in PLS-SEM reporting guidance (Hair et al., 2019).
R² indicates how much of the dependent variable is explained by the variables in the model. Values of 0.75, 0.50, and 0.25 are interpreted as substantial, moderate, and weak, respectively, in one PLS-SEM guide (Hair et al., 2011). These are reference points, not automatic conditions for concluding that a model is good or bad.
Common mistakes when using this model
The first mistake is treating Five Forces as a list of competitors. Your analysis needs to identify the mechanism of pressure, who experiences the pressure, which behavior or condition shows the pressure, and how it relates to the dependent variable.
The second mistake is using the five forces as five independent variables without clear scales. A variable such as “existing competition” needs several items that reflect the same concept. If each force has only one self-written item, it becomes difficult to assess measurement reliability and validity.
The third mistake is mixing levels of analysis. The respondents are customers, but the questions ask them to assess capital costs, supplier strategy, or industry-wide legal barriers. Choose respondents who have the relevant information, or word the questions as perceptions they can genuinely assess.
The fourth mistake is asserting the direction of an effect before reviewing the literature. Competitive pressure may be coded as “higher pressure” or as “a more favorable environment”. If the coding direction is inconsistent, the sign of the regression coefficient or path coefficient will be interpreted incorrectly.
Finally, do not use SPSS or SmartPLS results to make claims about an entire industry if the sample came from a small group in one location. State the sample scope, sampling method, and limits on generalization. If you are unsure whether to use “assumption” or “hypothesis”, read the article on assumption or hypothesis before writing the research chapter.
Frequently asked questions
Is Porter's Five Forces a quantitative model?
It is first an analytical framework for the competitive environment. To use it in quantitative research, you have to convert the forces into latent variables or measured variables, design a questionnaire, collect data, and test the relationships using SPSS or SmartPLS.
Does Porter's Five Forces have to include all five forces?
The original model contains five forces. If your topic uses only some of them, state the selection criteria and explain why the remaining forces were excluded. A shortened model can be acceptable when it fits the research question, industry scope, and data-collection capacity.
Should I run SPSS or SmartPLS for Porter's Five Forces?
SPSS is suitable if you use regression with composite variables after testing Cronbach's Alpha and EFA. SmartPLS is suitable if you want to retain latent variables and assess the measurement model and structural model within the same procedure.
No software can repair a model that lacks a theoretical basis. Finalize the concepts, scales, and hypotheses before selecting the analytical tool.
Where can I find a Porter's Five Forces scale?
There is no single scale that fits every industry. Find empirical studies close to your industry, country, and survey population, then adjust the wording and reassess reliability, convergent validity, and discriminant validity.
What should I do if the results are not statistically significant?
Keep the result if the analytical procedure is valid and report that the hypothesis was not supported. Check the coding, items, missing data, sample size, multicollinearity, and interpretation of the direction of the effect. Do not remove a variable only because its p-value does not meet the threshold, and do not alter the data to create the result you wanted.
Open your dataset, create a table listing the five forces, items, scale sources, and corresponding hypotheses, and then check each path before running the analysis. If you need to run SPSS or SmartPLS on your own .sav or .csv file, you can use the M4 analysis module.