The internet is a crazy galaxy full of billions of different businesses working hard to get their customers attention… Sometimes it can be more complicated than a sandworm burrow.
The question you’re probably asking yourself is “I know I have to be online, but how do I compete with my competitors once I get there?”
Well, the ‘Five Forces Model’ by Michael Porter will help you stop resting on your repulsors and jet (or for non-Star Wars fans, ‘get moving!’)
The Five Forces Model is used by many different businesses to aid in competing against others in their industry. The name really speaks for itself, in that it recognises five different forces that affect the degree of competition and level of profitability:
Michael Porter’s Five Forces:
A brief run down on each of these forces:
THREAT OF ENTRY OF NEW COMPETITORS
How easy it is for new businesses to enter the market? The easier this is, the harder it is for you to make a profit.
BARGAINING POWER OF SUPPLIERS
This is how easy it is going to be for your supplier to drive up prices. If you have several different suppliers to choose from, the supplier does not hold a lot of power. This is because you are able to switch suppliers if their prices become too high.
BARGAINING POWER OF BUYERS
How easy it is for customers to affect the prices of your products? If there is only a handful of customers in the market, they will have a lot of buyer power as all competitors will be fighting for their sales. If there are many customers, your power will increase.
THREAT OF SUBSTITUTION
This is how easy it is for customers to find another way to get what you are offering/selling. The easier this is for them, the less power you have.
COMPETITIVE RIVALRY AMONG EXISTING FIRMS.
How many competitors there are existing in the market? You must ask if their products are as good as yours, and if so, how can you establish a strong advantage over them?
When considering entering a new market, the benefit of completing an analysis of Porter’s Five Forces is that you can see at a glance how profitable you could be, and any risks associated with entering that you should try and overcome from the get go.
So, in saying that, let’s have a look at what Porter’s Five Forces could mean for a jeweller looking to sell their products online:
Threat of New Entry
For someone who is aiming to sell jewellery, it is easy for new competitors to enter, especially internet based businesses. But with more and more competitors entering the market, it is becoming very depleted. You need to make sure you stand out.
Another thing to consider is the larger brands that are online, as you will be competing with their brand recognition.
There are many suppliers available for your industry, with competitive pricing. This puts you in a position of power.
Cost of your product is going to be a huge player in the online market, and you may need to consider the purchasing of your products from competitors elsewhere.
In the online environment there are many consumers – Which means they hold little power. But along with this means that it is easy for them to switch from one business to another.
Although this is an environment where consumers are plentiful and hold minimal power, the product you are selling must be different than the rest, otherwise the buyer will then hold more power (in the ability to shop elsewhere for the same product).
Threat of Substitution
In this environment it is easy for a customer to switch to a competitor. You need to consider how many other competitors are out there, and how their prices and quality compare to yours. Start to brainstorm strategies to stand out from the rest.
In this environment (selling jewellery) there is already a very high number of existing competitors who are capable of selling equal products. There is also the presence of several extremely established players in the market, who have large financial and marketing resources that you will not. Though, internet based companies are rising competition as they are doing better at keeping up with consumer trends and pricing strategies. (Arline, 2015)
From completing the Five Forces Analysis, we can identify the following major risks that may hinder the jewellers success in moving online:
- It is easy for new competitors to enter this industry and take away your sales;
- There is a lot of competition around costs existing;
- There are many consumers in this market, making it easy for them to switch to a competitor;
- There is a lot of existing competitors in the market that you must fight for your share of the market.
There are many different strategies out there that can give you the competitive advantage and help tackle the above problems. Some examples that you can consider implementing:
- Create a Niche – Instead of attempting to market to all the consumers, select a market ‘niche’ and direct your products towards them by means of quality, speed, costs, etc.
- Growth – Consider growing your business by offering more products, different types of products, new styles, (or for the jeweller; jewellery for both genders, ages, sizes, etc) to try and acquire new customers.
- Cost – You can review your all of your costs associated with your product, and any costs involved in running your business – and become more competitive this way.
- Alliance – Instead of going it alone, consider perhaps a joint venture or a partnership with an existing business who may already be well-established online.
- Innovation – Create a new method of doing business, a new idea to attract customers. Granted, going online is already innovative, perhaps you need to look at your marketing plan and change this up to focus more on your online consumers. Build an email list, social media pages, etc.
- Entry barriers – Work hard to set up barriers to entry for emerging competitors, examples are economies of scale (being able to produce more goods, at less cost), create a well-recognised brand/ loyal bunch of consumers, create excellent customer service to discourage new entrants.
- Customer/Supplier lock in – Persuade your customers to remain loyal instead of switching to a competitor. Methods such as memberships, subscriptions, member discounts, etc. can attract customer lock in.
- And many, many more!!
Look at how Porter’s Five Forces Model can help you spot any risks and create strategies around these today! And contact us if you would like help creating this analysis, or to discuss your findings and help create some competitive advantage!
May the force(s) be with you!
Administration Manager / Marketing Manager