Frankston City Council
Small Business Grants Program
Industry Analysis
Porter’s 5-Forces Model
Guiding Notes
The industry analysis tool will require you to consider how sustainable your business is with regard to
customers, suppliers and competitors. The industry analysis will assist with developing a point-ofdifference (PoD) for your goods/services. Through the small business grant submission process, this
model will define whether your business satisfies the objectives of the program:
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Employment creation
Build a resilient economy through sustainable and diverse industries
Develop pathways to employment through creative incubators
To sustain long-term profitability you must respond strategically to competition. And you naturally keep
tabs on your established rivals. But as you scan the competitive arena; are you also looking beyond your
direct competitors?
There are other competitive forces that can hurt your prospective profits. Here are some examples for
you to consider, which we want you to consider in the context of our businesses application:
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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 ratchet up the
investment required for you to stay in the game.
Substitute offerings can lure customers away.
Porter’s 5-Forces Model
Bargaining power of suppliers (not applicable to service businesses):
Here you assess how easy it is for suppliers to drive up prices or cut your supply. This is driven by:
 the number of suppliers of each key input,
 the uniqueness of their product or service,
 their strength and control over you,
 the cost of switching from one supplier to another
The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your
suppliers are.
This category is not applicable to service providers who have no physical inputs into their business (leave
this section blank on the application form if you are a service provider)
Instructions:
Please consider the information above and provide an indication of the bargaining power of suppliers on
a five-point scale on the application form (very low through to very high). You are required to provide
commentary in addition to your rating.
Bargaining power of buyers (your customers):
Here you ask yourself how easy it is for buyers to drive prices down. This is driven by:
 the number of buyers,
 the importance of each individual buyer to your business,
 the cost to them of switching from your products and services to those of someone else,
If you deal with few, powerful buyers, then they are often able to dictate terms to you.
Instructions:
Please consider the information above and provide an indication of the bargaining power of buyers (your
customers) on a five-point scale on the application form (very low through to very high). You are required
to provide commentary (maximum 100 words) in addition to your rating.
Threat of substitute goods/services:
This is affected by the ability of your customers to find a different way of doing what you do – Some
threats are:
 New technologies (eg. fuel efficient/hybrid cars)
 Online products/services with lower input costs (eg. cosmetics)
 Generic brands (eg. pharmaceuticals)
 Sustainability products (eg. plastic being replaced by recyclable bags)
 Automation (Automatic Teller Machines - ATM’s)
 Products/services with similar functions (eg. Wikipedia making physical encyclopaedias redundant –
Britannica)
If substitution is easy and viable, then this weakens your power.
Instructions:
Please consider the information above and provide an indication of the threat of substitute products on a
five-point scale on the application form (very low through to very high). You are required to provide
commentary in addition to your rating.
Threat of new entrants into the market:
Power is also affected by the ability of people to enter your market. If it costs little in time or money to
enter your market and compete effectively, if there are few economies of scale in place, or if you have
little protection for your key technologies, then new competitors can quickly enter your market and
weaken your position. If you have strong and durable barriers to entry, then you can preserve a
favourable position and take fair advantage of it. Examples of barriers to new entrants are:
 Government regulations, permits, tariffs, quotas and taxes
 High start-up costs (particularly for manufacturing)
 Specialist knowledge
 Economies of scale (ie. competitors ability to access bulk inventory and pass on savings to
customers)
 Patents, trademarks and copyright for technology, intellectual property and/or brands
Instructions:
Please consider the information above and provide an indication of the threat of new entrants into your
market on a five-point scale on the application form (very low through to very high). You are required to
provide commentary in addition to your rating.
The level of competitiveness in the industry:
What is important here is the number and capability of your competitors. If you have many competitors,
and they offer equally attractive products and services, then you'll most likely have little power in the
situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the
other hand, if no-one else can do what you do, then you can often have tremendous strength. Your
brand and marketing strategy is critical to being successful in highly competitive industries.
 Ability to create a niche for your goods/services and brand
 Ability to draw new customers (versus competing for existing customers)
 Competing on price versus quality (or both)?
 Value-add by up-selling complimentary goods/services
Instructions:
Please consider the information above and provide an indication of competitiveness in your industry on a
five-point scale on the application form (very low through to very high). You are required to provide
commentary in addition to your rating.