We already learned. To continue with the analysis of the industry, we suggest that you use porter’s cross to focus and describe the rivalry that exists around your business.
Michel Porter, creator of this technique, is a highly respected contemporary economist for his many contributions to the business school.
In this study we will describe the competitive forces operating around your business. For that, Porter’s cross establishes five main forces:
- Bargaining power with consumers.
- Bargaining power with suppliers.
- Threat of new competitors.
- Threats of substitute products.
- Rivalry between competitors.
Let’s see each of them in detail!
1. Bargaining power with consumers
This requires that you begin to understand their buying habits, their demands, their needs, whether they are professional or emotional buyers, whether they are looking for price or quality.
If there are many competitors in the industry, the consumer will have a greater bargaining power with your brand, due to supply and demand.
Later, it is convenient to assign a weight. For example: “Bargaining power with consumers: 4”, on a scale of 1 to 5.
2. Bargaining power with suppliers
your suppliers will be the raw materials, who provide you with the final product. They will be too the services, the professionals you hire and any tangible or intangible input add value to your brand.
The bargaining power will be centered on the possibility that the supplier sells his own products independently, or that he discards us as clients for not being good buyers. It will also depend on the size of the provider, the availability of liquidity and the number of providers in the market.
Based on those considerations, you will also need to assign a weight, such as “Bargaining power with suppliers: 3”
3. Threat of new competitors
It will depend above all on the barriers to entry that the industry has. Barriers to entry are those real or regulatory restrictions that prevent competitors from entering the market.
When an industry is attractive, as in the case of electronic commerce, it is very likely that the number of competitors will increase at a very high rate. In this case, we are going to use a high weight: “Threat of new entrants: 4”
4. Threat of substitute products
Within the market we have to see the possibilities that the client opts for a substitute product. The customer can change the brand because his preferences changed, because his income changed or because the prices of the other products changed.among other causes.
The threat of substitute products, in this case, could have a value of “2”.
5. Rivalry among competitors
First of all, we need to determine what is our “competitive set”: a set of five or six direct competitors that we will investigate throughout the life of our business. Once identified, we will try to determine how this competition occurs, if there is a price war, if there is cooperation, indifference or if there is high rivalry. A possible weighting of the level of rivalry between competitors could be 2.
It is key to optimize and survey the amount of information and study the case month by month.. Each time you will take less and you will have a good overview of the existing rivalry. 😉
and access an online store with everything you need to sell online.
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