Wednesday, 14 May 2014

Are You Using Porter's Five Forces Model?

Whether you're writing a marketing plan for a startup business or an existing organisation ready to enter new markets, you'll need to analyse the competitive situation in the industry.

One way to look at industry competition is through the lens of Professor Michael Porter's Five Forces model, which asks five strategic questions:
  1. How much bargaining power do buyers have? If there are only a few buyers, the business is likely to feel downward pressure on pricing. How can you make your offering stand out and add value that buyers will pay for? What role can good customer service play in your competitive situation?
  2. How much bargaining power do suppliers have? The more power suppliers have, the higher costs are likely to be. Keep this in mind as you plan your resource allocation and your profit-and-loss potential.
  3. How many substitutes are available for your offering? If there are many available substitutes for your good or service, competition will be more intense. And when buyers have many substitutes to choose from, that can negatively impact the marketer's ability to increase sales and maintain profitable pricing.
  4. What is the likelihood of new entrants coming into the industry? When many new entrants join the market, price competition intensifies and existing competitors may have profit problems. However, if there are few barriers to entry, build your marketing plan on promising opportunities that can be exploited with your unique strengths and capabilities. Also plan to build your brand into a barrier to entry.
  5. How much rivalry exists in the industry? Investigate the existing competitive situation to determine whether a market or segment is overly competitive--which can lead to price wars and other profit-sapping challenges.
Despite the constant change in the marketing environment, a careful competitive analysis will help you plan for innovatively pursuing opportunities and deflecting threats. Don't forget to include competitiveness when assessing which market segments to enter and what order.