The Hidden World of Threats to Your Business

There's a secret world of threats to your business. So how do you get access to it?

Every business is different, there's so many different variables like location, niche, languages etc. 

There is never one clear solution for all businesses.

But there is one framework that can help you identify threats to your business and dominate your local industry to be a top player.

Porter's Five Forces

Porters Five Forces

This model is one of the most popular business strategy tools that organizations use to understand more about the main competitive forces in their industry.

Porter's Five Forces include: Competitive Rivalry, Supplier Power, Buyer Power, Threat of Substitution, and Threat of New Entry.

This model is important because it encourages you to look beyond direct competitors when assessing your strategy and, instead, consider the broader environmental forces.

Threat of Competitive Rivalry:

Consider how many rivals you have, who they are, and how the quality of their product compares with yours. 

Is there something they are doing better than me?

Is there a threat of them stealing my customers?

In an industry where rivalry is intense, companies attract customers by cutting prices aggressively and launching high-impact marketing campaigns. This can make it easy for suppliers and buyers to go elsewhere if they feel that they're not getting a good deal from you. 

If competitive rivalry is low, and no one else is doing what you do, then you'll have tremendous competitor power, as well as healthy profits.

Threat of New Business:

Your position can be affected by potential competitors' ability to enter your market.

If it takes little money and effort to enter your market, then competitors can quickly enter your market and weaken your position.

This is why you need to have strong and durable barriers to entry.

These barriers can include complex distribution networks, high starting capital costs, and difficulties in finding suppliers who are not already committed to competitors. If it costs customers too much to switch between one supplier and another, this can also be a significant barrier to entry. So can extensive government regulation of an industry.

Existing businesses may be able to use economies of scale to drive their costs down, and maintain competitive advantage over newcomers. This applies mainly to manufacturing.

Threat of Buyer Power:

If the number of buyers is lower than the number of suppliers in an industry, then they have what's known as "buyer power." 

This means they may find it easy to switch to new, cheaper competitors, which can ultimately drive down prices.

Think about how many buyers you have (that is, people who buy products or services from you). Consider the size of their orders, and how much it would cost them to switch to a rival.

When you deal with only a few savvy customers, they have more power. But if you have many customers and little competition, buyer power decreases.

Threats of Supplier:

Suppliers gain power if they can increase their prices easily, or reduce the quality of their product. If your suppliers are the only ones who can supply a particular service, then they have considerable supplier power. 

The more suppliers you have to choose from, the easier it will be to switch to a cheaper alternative. 

But if there are fewer suppliers, and you rely heavily on them, the stronger their position,  and they can charge you more. 

This can affect your profits, for example, if you're forced into an expensive contract. 

Threat of Substitution:

The possibility that your clients will discover a different way of doing what you do. It could be cheaper, or better, or both. 

The threat of substitution rises when customers find it easy to switch to another product, or when a new and desirable product enters the market unexpectedly.

How to use this?

By understanding these forces, you can make more informed decisions, identify areas for improvement, and redefine your strategy to strengthen your competitive position in the market.

If you find yourself in a structurally weak position, the model can help you to think about what you can do to move into a stronger one.

There’s plenty of ways to do this and it’s doable for every single business, yours included. If you want to know how we would do this in your business, get in touch with us today.

- Krishna

Krishna Results

Marketing in Memphis