What are Porter’s Five Forces?
Sizing up the competition and researching the work of one’s competitors should be a matter of importance for any company or organization—no matter how small or large it might be. Even though you won’t want to become overwhelmed with the business of keeping an eye on the competition, you certainly want to have a healthy understanding of what it is that they’re doing right when it comes to serving their customer base in terms of bargaining power. This is where Porter’s Five Forces comes in. The five-forces model of analysis offers competitive forces including competitive rivalry (including switching costs), the bargaining power of suppliers, the power of buyers, the threat of substitutes, and barriers to entry or the threat of new entry. This five-forces analysis can be used across all sectors of business, and it’s utilized to identify the reasons or trends that allow specific industries to be profitable in their work. It can also be helpful in uncovering the strengths and weaknesses of an organization and that data informs their practices and policies going forward giving you a competitive advantage and increase your market share. Each different force speaks to a distinct variable that all businesses have to grapple with. Competition in an industry, the potential of new entrants into an industry, the power of the suppliers and the power of the customers, and the threat that comes along with alternative or substitute products.
Keep Your Enemies Close…and Your Customers Closer
Knowing just how many competitors one has to keep an eye on is essential. There are only so many customers out there and you want to be able to retain as many of them as you possibly can as time draws on. This means that the more companies there are existing within one niche or sector, the less power each individual company has when it comes to driving sales. Prospective and veteran business owners alike should make it a point to be referring back to this first force regularly, but not obsessively. Competition within an industry might be the most crucial of the Five Forces to study. When there’s less competition within a business sector, existing companies, as well as those up and coming businesses, have the greater probability for success.
Stay Alert, Stay Safe
Just as a corporation is affected by its existing competition, it’s also affected by the threat of new entrants coming into the same field of business. Each sector has its own unique obstacles that go hand in hand with getting an operation started. There are a number of business niches out there that are more costly to get started in and, for that reason, the competition in these niches is not as stiff. That’s not to say that there’s no competition whatsoever, but new entrants are certainly less of a worry for business owners in these sectors. The more affordable an industry is the more motivated new entrants will be to enter that industry. This means that it’s key for existing owners to keep an eye on trends that might arise within their niche that might cause an influx of new entrants.
Pinch Those Pennies Where You Can
Suppliers also play a major role in the business of doing business and their involvement can be very taxing or very simple depending on the niche you’re focusing on. Costs can skyrocket really quickly when you factor in a number of variables surrounding manufacturing. Avoiding disastrous financial ruin is a continuous goal and this is a huge point to ponder long before a business has been established. Even when your business relies on simple materials, you can never predict when an emergency situation or shortage might take place. Marketing an extremely exclusive product might make competitors a non-issue, but costs could become a pain if that product requires finer materials that are not easily sourced. If there’s only a small pool of suppliers that you have to pull from, each supplier’s power will hold a lot of weight where your business is concerned.
Supply and (Alternative) Demand
Customers also hold a lot of power and they can cause prices to drop swiftly if and when demand for a product fades out. Demand relates to the number of customers that support a company and the significance that each customer presents with their purchases. Any business should hope to build a loyal customer base and this is the best way to secure the future of a company. Alternative products and substitutes are the final of the Five Forces that can threaten a business. We’ve seen it a million times in the past: once a new product gets released and becomes a big hit, there are a handful of knock-off versions that are eventually released as well. These knock-off versions are generally made cheaply and the price tags reflect that. Of course, cheaper price tags are going to entice customers and that’s how a market becomes saturated. You want to make sure that you distinguish your products from the rest of the offerings your competitors bring to the table for customers.
Business Brains are Creative Minds
When it comes to being successful with digital marketing, innate creativity has to be a part of your nature. If you don’t have creativity intact beforehand, it’s going to be pretty difficult to get projects off the ground. You also want to be sure that you’re paying close attention to the core values of whatever company you’re marketing for—even if it’s your own. Digital marketing has become extremely witty and influenced by pop culture and that should make it even easier to break into it. You can rely on Porter’s Five Forces to guide the creation of vision boards and concepts for your digital marketing contracts. As you research the competition within whatever niche you’re targeting, it’ll be that much simpler to decide on which ideas might be the best to pursue in terms of marketing campaigns. This is the time to get a feel for the winning marketing methods your competitors have used—and to brainstorm as many new ideas as you possibly can with the rest of your marketing team.
The Big Wrap-Up
Porter’s Five Forces analysis has stood the test of time and these principles serve as the perfect foundation for so much thorough research. If businesses hope to thrive through downturns and harder times, they’ve always got to remain open and ready to tweak their budgets in the most ethical ways possible through effective strategic decision-making. Using the Five Forces to inform your digital marketing strategy should take very little effort!
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