Dominating competitors with the study of Porter's 5 forces

Action is nothing without information

One of the advantages of carrying out an analysis phase prior to planning in a marketing plan is certainly that of being able to gain greater awareness of the market in which a business operates, especially when we are talking about competitors.

We at Deep Marketing repeat a few "mantras," among them:

We cannot control the market. But we can control our reaction to the market.

Which, in practical terms, implies having a fairly realistic idea of our competitors and what is "out there." Otherwise, controlling our actions is virtually useless, because decisions are based on stereotypes and hot air.

Among the most useful methodological grids for carrying out this analysis task is Prof. Porter's Extended Competitive Analysis Model, also known as the "Five Forces Model." It summarizes the forces that influence the category in which we operate, and which cascade to determine the ability our company possesses in serving customers and making profits.

The five dragons to study and master

Specifically, regarding the intensity of competition, Porter identified as many as five forces that interact simultaneously within any market.

1) Direct competition, understood as competition between firms operating in the same industry and offering an identical product. In many fields, this is the factor that most determines the degree of competitiveness. Translated: we need to know our main competitors very well.

2) The threat of new entrants, determined by the possibility of potential competitors entering the market, depending on the market's barriers to entry, represented by entry costs. New entrants can put pressure on companies already operating in a given industry.

There is much empirical evidence that testifies that not even a leading company is safe since new companies can always come along that are more aggressive and better at product development and marketing!

3) The threat of substitute goods or services, that is, the risk of similar goods being introduced into the market to those already present, or consisting of different, and sometimes more effective, ways of meeting the same need.

In the book Digital Deep Marketing Remastered we explore this thorny problem very carefully, starting with the customers' unconscious. As entrepreneurs and professionals we are indeed always rather "biased" toward thesupply side. But putting ourselves on the side of the customer, i.e., the demand side, it seems all too easy to notice how people want to satisfy general needs and are not too scrupulous in deciding with what kind of service or product to reach their goal.

So we are constantly threatened by other market categories that solve the same problem that our products solve!

4) Theincrease in bargaining power of suppliers (the input market), potentially caused by a risky presence of suppliers, who then have the power to increase prices and decrease supply, affecting the entire supply cycle.

With a limiting example, if there is a single supplier of raw materials for us who make chocolate bars, we are by definition forced to source from this single supplier. Which may decide to raise the price of its raw materials through the roof, leaving us no choice. Except to buy from him anyway!

5) Theincreased bargaining power of customers (i.e., the output market), which also establishes the ability for customers to exercise their bargaining power, and consequently capture more value by forcing us to lower prices, demanding higher quality or better services.

The main result achieved byanalyzing competition through these five forces is to be able to determine a lasting competitive advantage in the economic environment in which companies operate by analyzing the structure of the target industry, its profitability and potential profitability.

Not bad.