Today’s Marketing Management Notes
Michael Porter (father of modern business strategy) identified five forces that determine the attractiveness of a market (industry competitors, potential entrants, substitutes, buyers, and suppliers). The first force is the threat of intense segment rivalry. If a market already has a lot of strong competitors established, it is an attractive market to go into. The second is the threat of potential entrants, meaning how easy it is for new firms to enter the market. A market segment is attractive to work in if it is difficult to enter and easy to quit if you are performing poorly. The most unattractive scenario is if it is easy to enter but difficult to quit because different firms enter during the good times and struggle to leave when times get bad. The third one is the threat of substitutes. If there are actual or potential substitutes to your product, there is a limit placed on your profit and prices, making your market unattractive. The fourth is the threat of buyers’ bargaining power. If the buyer had a lot of buying power, the market would be unattractive. This can be solved by offering strong options that the buyer will not refuse. The fifth is the threat of suppliers’ growing bargaining power. If suppliers have the power to raise prices or reduce supply quantity, it makes the market unattractive. Suppliers are powerful when they are organized, and there are few substitutes. It is important to create a win-win relationship with the supplier or use multiple supply sources to reduce their power.