One of the company's goals is to survive in a competitive environment. From this point of view, market analysis means the collection and analysis of information that helps to develop a survival strategy. Michael Porter's theory of five forces can be used to account for competitive threats.
Instructions
Step 1
Analyze the threat of new competitors. It is necessary to assess how easy or difficult it is for them to acquire the necessary equipment, skills, etc. in order to take a part of the profit from the company. If the barriers to entry into the industry are low, competition can intensify. In this case, the company's management must decide in advance whether there is a chance of winning the price wars.
Step 2
Understand the threat of substitute products. If the company is making tinplate packaging, customers can switch to cheap plastic packaging. A decrease in demand for tin is possible, then competition between producers will increase in proportion to a decrease in demand. By analogy, analyze the conditions in which the company operates.
Step 3
Find out what leverage is for buyers. When there are many buyers, their impact on sellers is small. If there are few customers in the industry, they can push competitors against each other, forcing them to lower prices.
Step 4
Assess the leverage of suppliers. If the company's suppliers have customers in other industries, they can impose conditions on the company.
Step 5
Analyze the rivalry between existing firms. The severity of the rivalry depends on the strengths analyzed in the 4 previous steps.
Step 6
Choose the right development strategy. If the 5 forces in the industry indicate strong competition, the company should be prepared for low-cost manufacturing and value-added services that solve customer problems.
Step 7
Consider options for imposing hard rules. A company may lobby for laws that competitors will find difficult to comply with. Then 5 forces acting in the market will change the degree of influence on each other.
