What is the Competitive Environment in Businesses? Porter’s five forces

July 20, 2020
Competitive Environment in Businesses
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In a competitive environment we focus on studying what our competitors are doing for the purpose of positioning ourselves so that we can be more successful in the marketplace.

Business is really competitive these days, and if you are managing business or marketing for any brand so you need to understand these things-

Competition

Environment

Company’s Position (StandPoint)

Competition environment helps you Segment your product in market space and target the right audience. 

Example – 

As you see above there are several brands in the market of Soft drinks. So we choose their prime attributes Sugar and Caffeine to differ their Segment.

So you have created a segment through these attributes, and you see there are already brands which segmented themselves in the market in 1st, 2nd and ,4th Quadrant.

And found out there are unmet gaps that need to be fulfilled in the market. So the best segment you target is quadrant 3rd.

After that you can position your product in the market using 4p’s.

One of the most popular frameworks to understand the competition environment in business is Porter’s 5 forces Model.

Porter’s 5 forces which are supply power, buy power, competitive rivalry, threat of substitutes and threat of new entrants, these five forces determine a company’s competitive environment which affects profitability.

Source: Wikipedia

The Threat of Substitute – 

New entrances to an industry put pressure on Price, cost and Rate of investment.

This First Force analyzes the ease of entry for new competitors in the marketplace. If the Entry is easy, then the level of competition is high.

Buyer power – 

Buyers can pressure companies to reduce their prices to provide higher quality products.

If the buyer has a strong bargaining position, then this will drive down the prices of the Product and Also lower the profitability.

 Supplier Power – 

If suppliers have extreme bargaining power, they can bargain away any of the profits.

If you have a few suppliers, then your product cost will go high, and Profit goes down. So it’s better for you if the Industry has low supplier power.

The Threat of Substitute – 

The more the Substitute products in the market, the more the lower Profit in that Industry.

So it’s better to have fewer Possible substitutes for your Industry.

Competitive rivalry – 

It is measured by the size of the competition in your Industry. 

You would prefer less competition in the market, but the reality is different.

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