This blog post was adapted from an article by Lextech Product Owner Andrew Keener. He blogs at Keenerstrategy.com.
Having a competitive analysis is key when stepping into a market. It helps you understand why you are unique and allows you to create a strong value proposition. Michael Porter’s Five Competitive Forces are essential elements that strategists should consider when entering or competing in a market. This post covers a review of competitive analysis and enterprise mobile app strategy implications.
In the Market Based View of competitive analysis, Michael Porter’s “The Five Competitive Forces that Shape Strategy” provides the seminal framework for understanding where and how a firm ought to compete.
Michael Porter’s Five Competitive Forces
The Five Forces are:
1. Threat of New Entrants – The threat of new competitors entering an industry is high when initial cost in time or money to enter an industry is low. Common barriers to entry are:
– Learning Curve Disadvantage – A landscape in which only an expert can compete and training is either restricted or difficult to obtain.
– Economies of Scale – In an industry that compete based on price, businesses that have grown large can drive down operational costs and leverage their market influence against suppliers. Firms competing on differentiation may also take advantage of economies of scale tactics to maintain margins and process repeatability.
– Technology Protection – In many industries, such as pharmaceuticals, the cost to do business requires intellectual property or significant investment in operations technology that must occur.
2. Threat of Substitution – The threat of substitution is high when a product or category outside the industry could fill the demand for a good if supply were short and prices too high (e.g., if coconut water prices triple, bottled water could play the substitute role).
3. Supplier Power – The threat of supplier power is high when there is resource or information asymmetry. This is especially true when a consolidated mature industry is the supplier for a fragmented industry with no clear leader.
4. Buyer Power – The threat of buyer power is high when there are fewer buyers than suppliers, or it’s lower when demand is less than supply. Any firm producing a B2B good or service is susceptible to this risk if there is extreme reliance on a single buyer, such as a chipset manufacturer that is one of several vendors for a much larger company that integrates, markets, and distributes.
5. Competitive Rivalry – The threat of competitive rivalry is high when a market becomes saturated and homogenous firms compete based on price. This threat is especially high when industries have players that begin engaging in price wars despite originally competing through differentiation in niche markets.
Up next in part 2 (read here): Competitive forces and enterprise mobility: what this means for your mobile app portfolio.