Porter’s Five Forces is a business model that you can use to analyse the competitiveness or attractiveness of a particular industry – whether you’re already within it, or you’re thinking of entering it.
Below is a breakdown of this analysis and what each aspect entails.
1. Competitive Rivalry
The first force considers the level and threat of competition in an industry. The more competitors and the higher the number of equivalent services and products they offer, the more a business’ power is reduced – and the harder it will need to work to establish itself as an authority and market itself.
2. Threat of New Entry
The second force considers how easy and likely it is for new people to enter the market. The lower the barriers to entry, the more competitive the industry and the harder a business will need to work to stay present in a sea of new companies popping up.
3. Supplier Power
The third force, supplier power, considers – you guessed it – the power a business’ supplier holds, specifically in regard to raising their prices. High supplier power typically means there are few suppliers that can provide the goods or services to a business, meaning they can adjust their prices more easily and a business may have no choice but to stick with them and grin and bear it, putting itself in a weaker position.
4. Buyer Power
The fourth force follows a similar concept to supplier power, but considers the power a business’ customers have in dictating prices. The more customers a company has, the easier it is to increase prices, with the loss of a single customer having less impact than it would for a company with a small, select client base.
5. Threat of Substitution
The final force considers the threat of substitution – how likely it is that someone could substitute your products or services with that of someone else. In a competitive market, this will be very likely – which is why it’s so important to define your unique selling points (USPs) and your client avatar and ensure your marketing is as effective and enticing as possible.
Conducting an analysis of Porter’s Five Forces can be useful for entering new markets, releasing new products and for producing a marketing plan – as the more competitive an industry is, the more resources will need to be allocated to your marketing plan. If you need help with establishing your business as an authority in your field online, speak to our team at Engage Web today.
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