What is the intensity of rivalry within Porter’s five forces model?
This article asks what the intensity of rivalry is within Porter’s five forces model? We explain the intensity of rivalry, how to detect and analyse it within your industry.
Porter’s five forces model
Michael Porter argues that the five forces influence competition and long-term investments. The five forces are:
- Threat of entry
- Bargaining power of suppliers
- Bargaining power of bias
- Intensity of rivalry
- Threat of substitution
It’s essential to be strategically positioned within your industry. Firstly, to defend yourself from these forces. And then go on the attack by manipulating them to your advantage. Perhaps the primary force of Porter’s five forces is what is known as the intensity of rivalry.
What is the intensity of rivalry in Porter’s five forces model, and why does it matter?
Answer: Intensity of rivalry refers to the level of competition between existing businesses in an industry. High rivalry limits profitability through price wars and customer churn, while low rivalry makes the industry more attractive and stable for long-term growth.
Within Porter’s five forces, intensity of rivalry shows how aggressively companies compete. If many firms are similar in size, growth is slow, and products are undifferentiated, rivalry will be high—pushing down profits. A low-rivalry market means fewer price battles and more room for healthy margins.
Intensity of rivalry
The final factor to consider is the level of competition among existing companies within your industry. How much pressure do competitors put on one another to win more business? Watch out for the intensity of rivalry, marked by pricing and advertising battles, new product introductions, and heightened customer service. All of which quickly, certainly in the short term, reduces profit potential for everyone within the industry. The intensity of rivalry is one of the critical forces shaping your competitive industry structure.
Ideally, it is best to invest time and/or money in an industry with a low intensity of rivalry.
Few competitors
Several factors can lead to lower competition, such as concentrated areas with a few competitors in the market. You may prefer to see that a few players dominate the industry. Companies are then familiar with the industry’s hierarchy. And larger companies tend to be more consistent and sensible. Often, the smaller ones try something stupid, which can fail “big time” or be a spectacular success. The level of intensity of rivalry in your industry has a single primary effect. The ability for you and your competitors to achieve profitability.
High intensity of a rivalry situation
In a high-intensity rivalry situation, you will face competitors aggressively targeting your market and offering very competitive pricing. To a point where you wonder how they are making any profit at all. This situation costs everyone in the industry, including customers. Yes, they have lots of choices and great prices, but something has to give. The quality of a product or customer service is usually the first thing to suffer.
Signs of high intensity
Brand loyalty means nothing, and customers can switch to your competitors without incurring high switching costs. Your competitors position themselves differently from all other competitors. There is an excess of production capacity, and it will be costly for a business to exit the industry. High exit barriers.
The intensity of rivalry will be intense if industry growth is slow and if fixed costs are predictable and high. If products and services are hard to differentiate or are commodities
Commodities
According to Investopedia, a commodity is a basic good used in commerce interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers.
Signs of high high-intensity rivalry situation:
- Many competitors
- Slow industry growth
- High fixed costs
- Similar-sized competitors
- Competitors with equal market share
- Strategically diverse competitors
- Products are hard to differentiate
- Little or no brand loyalty
- Low customer switching costs
- Excess production capacity
- High exit barriers
Signs of low intensity
On the other hand, a low-intensity environment will make your industry so much less competitive. Profits will increase for you. Signs of a low-intensity climate include:
- Few competitors
- Competitors are not similar in size. Small and very big
- Some competitors have unequal market share
- Competitors are not strategically diverse
- Fast industry growth
- Low fixed costs
- Differentiated products
- Significant brand loyalty is
- Low Exit barriers
- High customer switching costs
- Little or no excess production capacity
Most companies can fulfil their shareholder promises without having to wage price wars and lower fixed costs.
Example low differentiation industry
For example, you may have just built a new production plant that can manufacture ten products a day. You find the demand for the product stands at seven products per day. So you are making three more than you need. The difference in the cost of producing these ten products and seven products is minimal. With this in mind, you may decide to cut your prices to sell 10 per day for a slight loss of profit. Usually, you will see this sort of behaviour in industries with low differentiation.
If your customers view your products as merely a commodity, they will prioritise price over quality. Making the price very important and sensitive to market conditions. Think Oil and Gas, wheat producers, and mining companies. Imagine trying to differentiate your barrel of oil on something other than price? Colour and taste are out of the window. Perhaps the source of the oil? You will be on a sticky wicket with that argument.
Many factors when analysing the industry
When analysing the industry, many factors related to the intensity of competitive rivalry may not apply to you. But many will. Also, life has never been straightforward. Some may indicate the low intensity of rivalry. And others have a high intensity of rivalry. When analysing, it’s essential to take current circumstances and the other information you have on your competitors and the market.
Conclusion
What is the intensity of rivalry within Porter’s five forces model?
Put simply, Porter’s five forces industry analysis will show that a low intensity of rivalry will make your industry more attractive. With a lot more potential for good profits for you and your competitors. The high intensity of rivalry makes your market sector less attractive, resulting in lower profit potential.
This article explored the intensity of rivalry within Porter’s Five Forces model. It explained the intensity of rivalry, as well as how to detect and analyse it. Hopefully, we have demonstrated that the intensity of rivalry among you and your competitors is one of the most important factors when analysing your industry’s structural environment using Porter’s five forces framework.
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