Understanding and keeping track of your competitors is essential for the success of your business, regardless of its size. It is crucial to know how their actions in the marketplace can impact your profitability and future planning. Fortunately, there is a powerful tool that can help you analyse market competition and gain valuable insights into your competitors’ strategies: Porter’s Five Forces Model, developed by Michael Porter of the Harvard Business School. Let’s delve into how this model can benefit your business.

Porter’s Five Forces Model eliminates the guesswork from competitor analysis by providing a systematic framework to assess your competitors’ activities and their potential impact on your bottom line. The model considers the actions of other businesses in your industry as a starting point for analysis. According to Porter, understanding both the competitive forces and the overall industry structure is crucial for effective competition analysis. By utilising the following forces, you can gain a better understanding of your business’s competition.

1. Competitive Rivalry

This force evaluates the intensity of competition in the marketplace, which is determined by the number of existing competitors and their capabilities. If there are only a few businesses selling similar products or services, the rivalry competition is considered high. In such cases, price wars and increased advertising costs can negatively affect your business’s profitability.

2. Bargaining Power of Suppliers

This force examines the number of suppliers in the marketplace, their power, and their ability to raise prices. Your business will be in a better bargaining position if there are multiple potential suppliers available.

3. Bargaining Power of Customers

This force assesses the power of customers to influence pricing and quality. In marketplaces where customers are scarce compared to the number of sellers, customers have a significant influence. Conversely, in markets where customers make small purchases, and the seller’s product differs significantly from competitors, the seller has more power.

4. Threat of New Entrants

This force analyses the ease with which new competitors can enter the market. If entry barriers are low, there is an increased risk of your business’s market share being eroded.

5. Threat of Substitute Products or Services

This force evaluates the ease with which consumers can switch from your product or service to alternatives. Factors influencing this include the number of competitors, their pricing, and the relative quality of their offerings.

Key Tips

By utilising Porter’s Five Forces Model, you can gain a competitive advantage for your business. If you join Bartercard, you’ll not only gain access to a vast network of opportunities but also reduce competition. Discover how Bartercard can help improve your bottom line, retain customers, and increase your business’s cash flow – contact us today.