In the previous article, we discussed business competition and management’s approach to it when creating a strategy. In marketing, knowing your competitors is extremely important, as it can help us establish a positioning strategy. However, besides direct competition, there are four other forces that affect every business.
In a remarkable article from the Harvard Business Review published in 2008, Michael Porter defined the five competitive forces that shape strategy. We will review them, analyzing the effects each has on marketing strategy.
Customers
They are increasingly well-informed. Think about how many reviews you read and how many opinions you seek before making a purchase. Google has named this new step ZMOT (Zero Moment Of Truth): the first thing we do when something or someone catches our attention is to search for information about it online. As customers, we are better informed and, therefore, more powerful. The same applies to the audience we address.
Porter advises us to limit this power by giving more: quality services in a combination that customers can find with difficulty or not at all elsewhere. As marketers, this is an invitation to creativity. Let’s create brands with such high added value that we manage LoveMarks, not just brands. Creating a mix of marketing programs that keeps our “tribe” engaged is a beautiful challenge that requires reflection, hard work, and the delivery of excellence.
Suppliers
Not all of them, but only some. Depending on the industry we operate in, they provide us with services, raw materials, or finished products. Especially in manufacturing industries, suppliers are powerful due to their bargaining power. In this case, our company is the customer, which must increase the leverage it exerts over the supplier.
Porter advises us to do this by standardizing the technical specifications of the products we purchase. Another technique used is the exclusivity argument, which puts pressure on the supplier, motivating them to offer us advantageous terms in exchange for the exclusive sale of their products.
This is a common technique among tobacco or beverage manufacturers, who negotiate highly profitable contracts with HoReCa venues. Essentially, the way to decrease the power exerted by suppliers is to put ourselves in our shoes as customers: what can we do to increase our own power?
New Entrants
While the first two forces discussed acted vertically, the next two act horizontally, falling into the category we also call Indirect Competition. New entrants are a force we must consider when analyzing the market: the easier it is for a newcomer to enter a market, the less profitable that market becomes.
So, perhaps the best way to “defend” ourselves against new entrants is to choose markets that are difficult for others to enter, creating new niches. This way, we have a high chance of being first in that category, and those who follow will have to imitate us, fighting for second place.
By being (among) the first, we have the opportunity and time to add so much value to our products through original mixes that it will be difficult or impossible for startups to do so at the same level.
Substitute Products
The last competitive force Porter refers to in his article is all the products that can replace our product. And absolutely anything can fit here, which we don’t always think about when doing analyses… They are not necessarily similar products, but anything that can replace what we offer. For example, substitutable products for physical books can be the Kindle and audiobooks, but also magazines, television, or going out for a coffee.
Porter advises us to decrease this competitive force by offering increased value to our products, but also by ensuring their accessibility, through distribution and price. The reverse is to step into the other shoes: what can substitute our product, in a way never imagined before by any competitor? Thinking like this (this type of thinking is also called “paradoxical thinking”), we can thus reach new markets and niches.
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The conclusion of this short review seems to be that offering more and adding value is the key to business success. It seems to be indeed so, if we consider that this way we become stronger, decreasing the power of the forces that can act against us, but also by analyzing the success stories of large companies.
Porter wrote this article as a reaction to the SWOT analysis, which he considered unscientific and “ad-hoc”. Even though several years have passed since then, the perspective proposed by him is and will remain fresh, at least for a few years from now. How else could we look at a complete perspective that recommends quality as the key to success? It is like the “little black dress”: classic, elegant, and a must-have, regardless of the season or trends.
Article also published on Mad3.ro
