📣Five force model business competitive analysis tool
📣Five force model business competitive analysis tool
If you want to do business, you need to analyze these things. Before we get serious about business In addition to the passion for producing goods or services We should first analyze the competitive environment. which is extremely important Because it tells us in the first place what business we are going to do or shouldn't. One of the tools that is widely used that is widely used is called the Five Forces Model. Let's take a look.
📌 Five Forces Analysis
1. Threat of New Entrants and Barriers to entry
The difficulty of entry into the market for new entrepreneurs, which has resulted in the threat of having more competitors. Who has the opportunity to be a new competitor? Especially businesses that are in an uptrend with high sales and good profits. It is normal for other people to be more interested in doing the same business. And the less obstacles to starting a business, the higher the rate of entrepreneurship in the same business. And as a result, the market share that we used to receive has been reduced.
Some monopoly businesses have few competitors. will be less affected by this threat Or getting into this business is difficult, high cost, requires knowledge and expertise. There will be few competitors and unable to take market share.
🔸 Factors that determine the difficulty of entering the market such as
- Investments or resources required for doing business
- Technology in production, copyright or patent
- expertise or experience
- Customer loyalty to brands in the market
- If customers are very loyal to the original brand
- New competitors will be difficult to compete.
- State control policies, such as setting quotas concessions setting various standards
- If there is a strong control New competitors are difficult to compete.
- Economics of Scale if the business in the market has a large production The cost will be lower.
- Profits in the industry. If profits are low, competitors do not want to fight in this business.
🔸 How to cope
Adjust new business strategies to cope with changes. New competitors usually come with new products or price cuts. How do we plan for customers to buy or use our services? How do we create a way to prevent the emergence of new competitors? Create barriers to entry in the business.
2. Threat of Substitutes
Products that replace products that we sell or manufacture. but not the same type of product, but the purpose of use is the same or the same Or products that can meet certain needs similarly, giving customers more options to choose a replacement product if it is considered worth more than our product. For example, simply do not eat rice, eat noodles or expensive pork. I bought chicken instead. If the product is easily interchangeable There will be a high risk to business, especially in terms of price. But the most important threat in this factor is technology. The arrival of new products, such as electric cars, will definitely disrupt the fuel-filled cars. It's like a digital camera in place of a film camera.
🔸 Factors that will determine substitute products to enter the market such as
- Completion of Substitution If the product is not much different Customers can easily switch to another purchase.
- price level of substitute products
- Switching Costs if the cost of switching to a replacement product is low. The chances that the customer will change their mind and buy another one is great. If the replacement cost is high, for example Inventory Management Software Replacement which if changing the new system Must come to all new products.
- Customer preference and brand loyalty, for example, coke and pepsi are interchangeable, but some people choose to eat only each brand.
- number of customer choices
- consumer trends
🔸 How to cope
price, differentiation, brand and add more value to consumers. Make our products stand out and different that it's difficult to find other products to replace.
3. Bargaining Power of customers
Who are your customers? How does a buyer or customer have bargaining power, such as asking for a lower purchase price? or requesting to increase the quality of the product more If the merchant insists on not meeting the needs of the customer, it may lead to the customer turning to buy from another supplier, and if this continues, you may not have any customers left. If you follow customers, it may directly affect the profitability of the business.
🔸 Factors affecting the bargaining power of customers
- number of buyers If the number of buyers is small Businesses rely heavily on buyers. The bargaining power of buyers is high.
- the quantity that the customer buys If the buyer buys a large number of items The bargaining power of buyers is high.
- Integrity of information The more the buyer has the information on hand. how complete and complete he can compare both price and quality of us with many competitors only
- The cost of switching to other manufacturers' products (Switching Costs). If the Switching Costs are low, they can switch to buy anywhere.
- Our products are difficult to produce or service. which if the customer can't find it anywhere else The bargaining power of customers is less.
🔸 How to cope
Need to balance customer demand with business profits, or our business should not depend on a few large customers.
4. Bargaining power from suppliers (Power of Suppliers)
This is easy to see. that if the partner will raise the price Is it easy to do? by suppliers or partners which is responsible for delivering raw materials for production to us Therefore, the more suppliers that produce that kind of raw material. There are already a small number of them. This will result in less of our bargaining power as fewer suppliers tend to group together to set sales prices or reduce quality. without which we can not negotiate much And when we buy raw materials at high prices, our production costs are higher. And if the selling price can't move up, the more risky business is.
🔸 Factors that determine the bargaining power of suppliers
- The number of suppliers, if the suppliers are few, the bargaining power of the suppliers is high.
- Size of suppliers, if the suppliers are the big owners, the bargaining power of the suppliers is high.
- Other raw materials that can be substituted or not? And how much is the difference?
- number of suppliers per company using the service If the company depends on a single trading partner There will be problems in the future
🔸 How to cope
Group in businesses that produce the same product in order to negotiate with suppliers and to buy in bulk. to lower the price of raw materials
5. Industry Rivalry Competition
Analysis of the fierce competition of the market, which consists of the above 4 factors, the bargaining power of customers. Bargaining power from suppliers The threat of new entrepreneurs and the threat of substitute products by analyzing the overall market very competitive We should prepare well. Plan a tight strategy if you want to enter that market. To reduce risks and strengthen the organization further
🔸 Factors that will determine the level of business competition
- number of competitors in the market and size of competitors
- Competition, compete with each other, such as price cuts, advertising, product quality
- Market/industry growth opportunities If the market we will enter It is likely to expand in the future. The competition might not be as intense. Because there is still enough room for each business to make a profit.
- Economic conditions, market conditions, if the economy is good, market conditions are growing, each individual has a high growth rate, a lot of profits, will not compete with each other But if, on the contrary, the bad economy Market conditions are saturated. will compete highly to compete for market share between competitors
📌 All 5 pressures are low and that business is likely to be worth investing in.
All 5 pressures are high. The business is not worth investing in or if you decide to invest. may be many times more tired than usual which must have strengths to fight the fierce competition, for example, your product is different. top notch service or your cost is very low, etc.
📌 Benefits of Five forces model analysis
Five forces model analysis is an analysis to understand the environment of our business and the environment that affects our business. to strengthen our business even more The benefits are as follows:
- Understand the market and external factors of a business or industry To properly formulate a strategy or business plan by using SWOT analysis to analyze internal factors.
- when seeing opportunities or obstacles A business can strengthen its position. to reduce competitive pressure including creating competitive advantages
- If intending to do business or open a new business Using the 5 forces model analysis will help you decide whether to do or not do business.
- for investors It is another machine used to analyze that industry. before deciding to buy that stock.
📌 Notes when using the Five forces model
Even using the Five Forces analysis can be very useful. But it was a model that was thought from 1979, or about 40 years ago, when the market or industry is becoming more and more complex, not standing still, and there are forces that are not in the 5 forces involved. Some businesses may not be able to use Five Forces for analysis. And this model is a competitive analysis only. and to gain an advantage with competitors, partners and customers, which does not include the cooperation of each party
📌 Disadvantages of the Five Forces Model
- Should not be used in monopoly business Because there is almost no pressure at all, such as the Electricity Authority or the Airport Authority (AOT), analyzing the 5 forces is not helpful.
- overlapping markets Some industries are clearly indistinguishable.
- Camera market There are competitors such as smart phones or convenience stores, 7-11 selling everything. If we make a restaurant or coffee shop, will 7-11 be a competitor as well?
- Because they can't be measured in numbers clearly. Therefore, the analysis of each factor for each force may come from bias (bias), which causes the analysis to be misleading.
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