– to enter or not enter?
tend to think of competition as a bad thing – buyers deciding who to buy from
based purely on price. It is hard
to distinguish yourself from your competitors.
At the other extreme you can have a brilliant product “whose time
hasn’t come” and you are fighting an uphill battle because you need to sell
people on the IDEA as well as the product.
do you do about it?
your business and products need is an industry which has enough competition to
not have to blaze the trail, yet not too much competition.
How do you know??!
five forces model comes from the work of Michael Porter. The purpose is to define the competitiveness of an industry
as an indicator for entry – should you go into the industry or not?
Some competitiveness is required so that the market will be “hungry”
for the product, yet too much competition is likely to undermine profit and
therefore a new entrant is unlikely to succeed.
Entry. Principle: How costly is it
to get in to this industry?
which affect cost include distribution, economy of scale, differentiation of
product or brand, and learning curve. Franchising
can be a good option – the product is known, you have the brand power of a
parent company, and the set up costs of buying equipment may be cheaper.
Working from home or a virtual office can also reduce the costs of setup
and make it cheaper to get in to the industry.
Government action can be a barrier to entry by high costs of licences,
certification or permits and you also need to consider the impact of foreign
exchange rates and import/export costs.
times are tough in your industry you may like to “shop around” to find
another industry you can branch out into. Sydney
company Medicraft now makes hospital beds.
They used to make frames for mesh handbags (the type often known by the
trademark name of “Glomesh”) until that market was flooded by cheap copy
bags from overseas. The Geisser
family realised their expertise (and factory set up) was in making metal
how does competition affect you?
can grow your business - Large competitors can help you to promote your market.
If industry leaders start promoting a product it can help create a market
for yours – as long as you tell customers you also offer that product or
are you competing with? - Consider how to form alliances with competitors, or at
least strategic interrelationships. Can
you form a co-operative and advertise as a group?
This happens particularly in the tourism industry.
A locality of bed and breakfast providers will share advertising and
perhaps create a website which allows them to appear alongside large
competitors. In this case you are
no longer competing with other local B&B’s but all of you are competing
with the large hotel chains. The
first decision the consumer makes is what accommodation level to go for (B&B
or hotel) and then choose between the B&Bs – by working as a group you
have broken in to a market that otherwise was out of reach.
Principle: Effects of suppliers upon your business.
deciding the business or industry to work within you must consider the impact
suppliers have on you. If your only
input is reams of paper you have a lot of choice. If you require a particular screw that is imported from
overseas you are less in control of your business.
Your quality and ability to product your product is threatened by supply
and changes the raw materials (price or quality). Consider the cost to you of retooling (if they switch from
imperial to metric or change supported computer hardware).
Is the survival of your business tied to one supplier – the most common
example for this is that you become known for a flagship product – you then
are at their mercy. If they put prices up you cannot change to a competitors
Principle: whare are the buyers doing?
are the buyers? What can they
switch to? What are their demands
in terms of profit or quality? The two angles for marketing are to satisfy a
large number of buyers with a generic product or to tailor a product to a small
number of (higher price) buyers. Is
one of these segments more suited to you than another?
Should you be in both with different products?
consultants (such as myself as a “life coach”) – I provide individual
attention to one person at a higher hourly fee, or clients can come to a
workshop or seminar at a lower cost (per hour) and receive general information.
This is having the same base product or information but varying the price
to suit the needs of the buyer or customer.
Can you do this in your business? What
is the trend in your industry – towards specialisation or generalisation?
Principles: What else would
do or can [buyers] do without?
is the threat of substitution or “doing without”.
For some businesses or industries a threat is that clients will do it
themselves (even when it produces a poor quality end result).
Is this a threat to your industry, business or product?
What is the best way for you to deal with this?
do I apply this?
the industry you are in or intend to move into.
products consider the following summary:
Barriers to Entry. Key question:
How costly is it to get in (or stay in) this industry?
Rivalry Among Competitors. Key
question: Does competition help your business (through recognition or alliances)
are you spending time, money and effort competing rather than producing?
Suppliers. Key question: What are
the effects of suppliers upon your business – are you dependent or is your
relationship synergistic? What are the alternatives?
Buyers/Customers. Key question:
Whare are the buyers doing, what products do they want?
Is the trend towards lower cost or higher quality? What is their
perception of “value” in relation to your product(s)?
Substitutes. Key question: What
else creates the outcome of your product or service – can customers “do
answers to these questions will help you decide what industry, products and
services you should be in and how to market them.
What is the best way for you to compete – or should you be competing at
more information on these concepts, or to book a business or life coaching
session with the author, Joanne Mansell please phone 0416 181 654.
The first half hour consultation is complimentary.
For more articles (including business planning basics) see www.kaizencoaching.com.au
Mansell, Kaizen Coaching – “Mind, Body, Life Fitness”
(c) Kaizen Coaching 2000-2014. Trademarks Kaizen Coaching, Building an Extraordinary Business and Sportsmind are used with permission of their respective owners.