25/07/2016

Porter’s 5 Forces

Competitive Analysis

Unless you have cornered the market for Parrot laxative, you have competitors. You need to understand what they do, know what they sell, where they sell and how they sell.
They want your customers and you want theirs.

You may be serving an immature market and there are plenty of customers to share between you, in which case make the most of it and grab your share quickly before those competitors turn up.

Porters_5_forces

Porter’s 5 Forces
A detailed look at the full meaning of Porter’s 5 forces is not for these web pages, but there are some essential elements that can be very useful in defining your competitive landscape and we need to look at these in enough detail to allow you to understand the forces acting against you , yes there is more than just the taxman.

Existing competitors
If you operate in a local market only then you are likely to have a fair idea who your competing against. If you operate nationally or internationally then you have more work to do.

Local Markets
Depending on what you do you may be able to start with the local Yellow Pages to see who is listed under your heading but;

It is worth making sure you have thought through your competitors fully, the range of people using these web pages is too broad for us to be able to give comprehensive lists of likely competitors for every situation, here are a few to get your mental juices flowing.

Offering Possible Competition
Snack Bar other snack bars, restaurants, pubs, supermarkets, anyone selling crisps or similar, local garage, Mum…
Accountant Other accountants, PC software, on-line resources, DIY accounting books, retired accountants supplementing their pensions…
Jewellery shop Other Jewellers, on-line jewellery stores, eBay, supermarkets…

Threat of new Entrants
Here is a question you will know the answer to. How easy would it be for someone else to set up and offer the same products and services as you?

  • Is there a significant cost in getting started?
  • Do they need specialised premises or equipment?
  • Can they easily deal with your suppliers or other suppliers of similar goods?
  • Are your routes to your customers easily replicated?
  • Are there qualifications or legislations that make it difficult to get into your market?
  • What other barriers to entry are there?

If the barriers to entry are low AND the market is worth serving then expect competition.
If the barriers to entry are high AND the market is lucrative then expect competition.

Supplier Power
Franchises are the ultimate proof of supplier power, typically you have to buy everything through them and meet various targets or other criteria to continue trading under that franchise.

If you are in a situation where you are heavily reliant on one or more suppliers to be able to trade, this is a barrier to entry so not necessarily a bad thing. having said that, where possible it is advisable to have more than one source of anything you rely on to do business. Not always possible and so obvious we probably shouldn’t even have mentioned it.

Buyer Power
Now you would think that buyer power would be an absolute but there are many things buyers have to buy. Unless you sell your car before it is three years old you will have paid for an MOT test and the tyres or other work that went with it. The buyer usually still has the choice of where to buy and that’s where marketing can help them make the right choice.

Substitution
Imagine making a living servicing oil central heating boilers in a town where British gas is building a new pipe to. You know that British Gas will be making some significant offers to get people to move away from Oil and that they will have gained a significant amount of commitment locally before they started linking the town to the gas main.