In the previous article, we discussed about "Michael Porter’s Five Forces Model" to second Analysis (Buyer Power) out of five, and now we will continue the rest parts of analysis as below:
3. Competitive Rivalry:
What is important here is the number and capability of your competitors – for example, if you have many competitors who are offering equally attractive products and services of your products, you’ll most likely have little power in the situation. In this case, any suppliers or buyers can go to your competitors so easily because your products are very similar. If you are in this kind of market, new entrants are very likely to come and there is the threat of substitute products, suppliers and buyers in the market try to control.
Therefore, it is always seen in the middle of Five Forces Diagram. If suppliers and buyers don’t get a good deal from you, they’ll go elsewhere. So, here too, the competition is too strong for you.
4. Threat of Substitution:
This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute it by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. If there are other products (not the same) but it can be used in place of your product, then, there is strong Threat of substation too.
There are some areas where Threat of substitution mostly exists. Where there is product for product substitution e.g. Email can substitute fax, good toothpaste can reduce the need of dentists, Mama can substitute rice and so on.
5. Threat of New Entry:
Power is also affected by the ability of people to enter your market. These are the possibility where new entrants can come easily.
If it costs little in time or money to enter your market, the low cost of technology and compete effectively, Where there are few economies of scale in place, the benefits associated with bulk purchasing, Where it is easy to access distribution channel, e.g. do your competitors have the distribution channels sewn up? Where the exiting competitors do not retaliate to the new entrants? Where the government supports free market?
If you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you are in this kind of market, there is strong threat of new entrance to your market.
In conclusion, proper analysis of Five Forces will show where you are in the market and you will get ideas how to advance in the market.
You may also love to watch an Interview video with Michael E. Porter, Professor, Harvard University, regarding his Five Forces to apply in any business strategy in different circumstances.
3. Competitive Rivalry:
What is important here is the number and capability of your competitors – for example, if you have many competitors who are offering equally attractive products and services of your products, you’ll most likely have little power in the situation. In this case, any suppliers or buyers can go to your competitors so easily because your products are very similar. If you are in this kind of market, new entrants are very likely to come and there is the threat of substitute products, suppliers and buyers in the market try to control.
Therefore, it is always seen in the middle of Five Forces Diagram. If suppliers and buyers don’t get a good deal from you, they’ll go elsewhere. So, here too, the competition is too strong for you.
4. Threat of Substitution:
This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute it by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. If there are other products (not the same) but it can be used in place of your product, then, there is strong Threat of substation too.
There are some areas where Threat of substitution mostly exists. Where there is product for product substitution e.g. Email can substitute fax, good toothpaste can reduce the need of dentists, Mama can substitute rice and so on.
5. Threat of New Entry:
Power is also affected by the ability of people to enter your market. These are the possibility where new entrants can come easily.
If it costs little in time or money to enter your market, the low cost of technology and compete effectively, Where there are few economies of scale in place, the benefits associated with bulk purchasing, Where it is easy to access distribution channel, e.g. do your competitors have the distribution channels sewn up? Where the exiting competitors do not retaliate to the new entrants? Where the government supports free market?
If you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you are in this kind of market, there is strong threat of new entrance to your market.
In conclusion, proper analysis of Five Forces will show where you are in the market and you will get ideas how to advance in the market.
You may also love to watch an Interview video with Michael E. Porter, Professor, Harvard University, regarding his Five Forces to apply in any business strategy in different circumstances.
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