Although it is true that for some time it has been normal to find material and information on the Internet that encourages us to undertake and name our ideas. Many people curious about digital entrepreneurship are making money with their products and ideas, but the reality is that it takes effort to reach these levels of success.
Behind each success story there is a lot of daily work that is done and, above all, the fears that are faced.
As we know that this topic is experienced daily in most businesses, today we want to show you a model that, at first, may seem theoretical and not very relevant to shaping your business idea, but that can really offer a real vision of the environment you will face: Porter’s Five Forces.
Prepared? Let us begin!
What are Porter’s 5 forces?
We know Porter’s 5 forces as a strategy and business model created by the American economist Michael Porter from the 80s of the last century. This theory makes it possible to analyze the adverse or external forces that impede the development of a company, or in this case an enterprise, and more precisely, its profitability.
Porter’s 5 forces help entrepreneurs identify business weaknesses, opportunities, and threats and, based on this data, design marketing strategies that help them face day-to-day challenges and obstacles in order to grow and be truly profitable.
Porter divides the adverse dangers of business into 5 hostile forces:
- The power of customer negotiation
- The bargaining power of suppliers
- The threat of competitors new to the system
- The threat of new substitute products or services
- Rivalry between competitors in the same industry
Although at first this topic seems to be too theoretical and old when it comes to entrepreneurship, the reality is that Porter’s 5 forces model can be very useful to improve and start a business. Especially when it comes to starting a marketing plan or launching a new business.
Applying this model in the management of your new venture can help you measure the competition in your industry and identify new opportunities to stand out in your market niche. With Porter’s 5 forces, you can analyze and measure the power of your resources and from there, optimize them to enhance your opportunities or strengths and face threats and weaknesses.
What are Porter’s 5 forces?
Now that you know what Porter’s 5 forces are and how their application can be positive for your business, let’s see in detail what each of them refers to:
1. Bargaining power of clients
Let’s start with one of the most important forces and powers proposed by Porter, the power of . This force is especially important because it examines the power of the consumer and its effect on the prices and quality of your products or services.
For Porter, the most organized consumers end up demanding more in relation to prices, quality and services. Consequently, the business will have less margin and the market will be less attractive.
This theory proposes that it is advisable to identify who the important clients are and establish solid long-term relationships, but how do you know which are the most powerful clients?
Porter proposes that “important” or powerful customers when:
- They buy in large quantities
- What they buy corresponds to a significant part of the fixed costs
- The products of the sector are not differentiated, so they can easily get it with another brand or company.
So the fewer the number of products you offer, the better prices you can get to your customers and your bargaining power can increase.
2. Bargaining power of suppliers
How do you handle the issue of negotiating with the different suppliers involved in your business? When your suppliers have a lot of bargaining power, they have the ability to add value to their products and services, assuming a higher cost for you.
This is what the bargaining power of Porter’s suppliers basically refers to. Suppose that to make your venture possible you need to hire a computer scientist or a graphic designer and these are scarce, then you will need to offer a much more attractive payment to attract the best.
Of course, this will depend on the sector, the type of service you need and the market share you have, since businesses with high market shares can influence agreements with their suppliers a little more.
In short, if you are a small customer for that provider, you will lose whatever bargaining power you have.
3. The threat of entry of new competitors
The third of Porter’s five forces has to do with the difficulty or ease of access to the industry.
The appearance of competitors in the industry implies that the offer will be high and that, consequently, it will be more difficult to convince potential customers to choose your product.
Given this, there are numerous protectionist barriers by which access to a sector that is already consolidated is complex. For example, lack of experience, high tariff rates, difficulty in distribution channels, specialization in work processes or market saturation, among others.
Do you feel that it will be easy for you to enter the sector? Larger, well-established companies can afford economies of scale and with this, an undeniable ease of entering the market and cornering the sector.
There may also be barriers to market entry such as licensing requirements and other legal aspects that small entrepreneurs often do not have access to or knowledge of.
The power of the appearance of new competitors does not have to be negative for your business, this power can help you take advantage of your competition, such as reducing the cost of your products or services, increasing advertising, improving your image. online branding, improve sales processes, etc.
Don’t be afraid to make a ! See what works and brings success to others can also give you great ideas!
4. Threat of new substitute products or services
The third of the five forces proposed by Porter is the threat of new competitors or substitute products. This principle indicates how easy it is for a consumer to obtain what he needs in another industry.
In the restaurant segment, for example: if you are hungry, you can go to any restaurant to satisfy that need. This makes the service easy to replace, so this substitution becomes a threat and those who work in this niche know that they will have to fight to retain consumers.
This strength of the Porter analysis allows us to find out how these businesses enter the sector and define strategies to counteract them, such as improving advertising campaigns on social networks, strengthening sales channels or devising better offers for customers.
5. Rivalry between existing competitors
How powerful are your competitors’ strategies? Porter’s fifth force is related to the strategies of competitors in the industry in which you work. Rivalry is on the rise and as more competitors of greater size and capacity appear, the challenges for your business also increase.
Porter suggests that analyzing the rivalry between your competitors can help you take advantages and opportunities to unseat them, either by reducing prices or also by offering added value that others do not yet have available.
Are Porter’s 5 forces still valid in the digital environment?
Although Porter’s model has been used for decades to help companies in different industries to develop their marketing plans and the environment has changed drastically for everyone, it still makes sense to apply this model to understand and analyze these two fundamental actors: customers. and the competitors.
Without a doubt, the digital revolution has brought about a very important change in customer behavior, consumers are now much more informed, with access to a multitude of products and brands just a couple of clicks away.
A few years ago, the brands were the protagonists and the situation has been reversed, it is now the customers who have a predominant role when shopping and relating to brands and businesses to the point that messages, recommendations and comments from other customers similar to them, than the brands themselves.
The digital environment is causing a revolution. Technology and globalization have led to increased competition in all sectors and lower barriers to entry. Now, more and more companies of all sizes can compete in the market.
The truth is that competition is no longer down to the business next door, the most aggressive competitor can also be hundreds of thousands of miles away.
Porter’s Five Forces is still as important and as current as it was decades ago, and its application depends in this case on your ability to analyze as your business scenarios are changing. It is not worth carrying out the analyzes following the same guidelines as before, as the stage and the actors transform, your vision must also change.
How to use Porter’s 5 forces in Digital Marketing?
Every new business needs a business plan. well cared for to be successful, especially when trying to launch a new product on the market.
An environment with many competitors forces the entrepreneur to lower sales prices and, consequently, the profitability of his idea, while if he intends to offer a product with little competition or greater exclusivity, it is more likely that a high value will be achieved in sales. .
Therefore, it is necessary to take Porter’s 5 forces into account when designing your . For example, your business may have lower production costs or you may be able to produce your own thus reducing the rate of suppliers and in that case, the product you launch on the market can compete with lower prices.
On the other hand, it is also necessary to anticipate the possibility that some other product will be able to replace yours in a short time. In this case, you must include in your digital marketing plan defensive resources against this eventuality, such as patents or registrations that protect your idea, content and brand in general.
The idea is to include in the plan those events or turns to take at the helm of your business to avoid the pitfalls of the market and draw future projections that will lead you to success.
Once you have created a marketing plan taking Porter’s 5 forces into account, you will have the possibility to calculate the real profitability of your business idea. Knowing that the market and customer preferences change…
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