How you can understand your market standing and make strategy in accordance with your competition. It is not possible that we are doing business and we don’t keep news about our competitors’ new products, new services, or market strategy. Whether you are fortune 500 companies or local or a small business, the competitors’ direct influence is always on success. So, today, we will learn the Porters 5 forces model. It gives you an entire analysis your market standings. It was developed by world-famous Harvard Business Professor, Michael Porter. These 5 forces of porter and SWOT Analysis will help you in standing and framing the strategy of your business in comparison with your competition so that you don’t take any wrong step that may harm your business. # Porters 5 Strategy Forces ### 1. Competitive Rivalry Here, we see how many competitors you have and how strong they are. After that, you study their products and services and analyse whether your product is better as compared to them. So, what should be your strategy? If competition is strong, then become aggressive. To attract customers, you should: - Tag price - Launch need-based services - Work on high impact marketing strategies Because if you are not getting business, then it means that your customers are going somewhere else and your suppliers also had option to work with your rivals because they think that you are not giving them a good deal. On the other hand, if you have less competition, USP, and innovative products, then definitely you are strong in that market and earn good profits. Example: McDonald’s is an international chain present mostly in every market. According to its competition rivalry, they have many rivals in the fast-food sector like Burger King, KFC, Wengers, and Starbucks. So, customers have many choices. So, what’s their strategy? Cost-effective pricing – The cheapest burger of McDonald’s cost somewhere Rs. 40, which is very cost-effective as compared to its competitors. Localisation according to market- Like in India, the majority of the population has a spicy taste.  McDonald’s has that flavor and with potato in it. So, this is how they have held the market strongly everywhere. ### 2. Bargaining Power of Supplier This force analyses how much power does your supplier has to increase its input power or not. You have to see how much cost-effective it will be for you so that you may work with other suppliers. It’s very clear that if a supplier has a stronghold, then your business profitability reduces. And if you have options of switching off, then you may go to a low-cost supplier if your current supplier is increasing the cost. But, if the market has less suppliers for your product, then then they will have strong positions and demand any prices. Example There are many suppliers for supplying to McDonald’s. So, this is an advantage for McDonald’s. Also, the suppliers of McDonald’s are not vertically integrated which means suppliers don’t have control over the company’s distribution network, which takes the McDonald’s product reach the chains of their restaurants. ### 3. Bargaining Power of Buyers This force analyses consumers' bargaining power and what effect it has on your pricing and quality. Analyse your business and see how much power does your buyers have to reduce the prices. Following factors will determine your bargaining power: - How many consumers do you have? - What is the order size of your product? - How easy or difficult it is for your customer to switch to your competitor? - Can customers have command over all the above terms? If you have less customers, it is natural that your competitor will have command over your pricing and quality. If you have more customers, then power is in your hands. Example: McDonald’s has a strong bargaining power of buyers. In the fast-food restaurant business, customers have many choices and substitutes. There are many food outlets and small fast-food chains of burgers. So, McDonald’s has to decide it’s pricing and quality based on customers' tastes and preferences. In this way, customer loyalty will increase for their brands. Like McDonald’s keep the taste and price of its products as per Indians' choice. ### 4. Barriers to Entry This force analyses how difficult it is for a new player to enter the market of your business. The easier it will be to enter the market; your share will keep on reducing in the market. Basically, your risk increases. The factors that can be barriers to the entry are: - **Cost advantage:** What is the cost of your product or service? - **Access to input:** Which costs you have to bear in making the product i.e. raw material cost, labour cost, etc.? - **Economies of Scale:** What is your saving when you increase the production at a higher level? - **Strong brand identity:** Brand identity helps to increase the value, builds a loyal customer base, and discourages customers to purchase product of other competitors. So, if you are in the technology business, then keep your technology protected. The stronger the barrier for entry, the more the favourable situation will be for your business in that market. Example: Barrier to entry is a moderate force for McDonald’s. Today, most of the businesses depend on variable costs instead of fixed costs for opening a fast-food business. The capital cost of such businesses is very less as compared to chains like McDonald’s. They are not able to build a strong business identity. McDonald’s has a very strong business identity. It is very difficult to match with it and they have many loyal customers as well. This is why this force is moderate for McDonald's. ### 5. Threat of Substitute This force analyses how easily your customer leaves your product and services and want to try your competitor’s products and services. Following factors are examined here: - How many competitors are there? - How is the pricing and quality of your competitors in comparison to yours? - How much revenue and profit they are earning? By this, you will get an idea of whether they will reduce their product cost to attract the customers or not. Two things decide the threat of substitute: - Willingness of customer to change - Cost of switching immediately and long-term both So, these are the Porter 5 Forces strategies to get a competitive advantage. Whichever industry you pick, but these Porter 5 Forces strategies will always remain the same. Other factors like industry growth rate, government regulations, and innovations in technology are fleeting factors that keep on going and coming. But, these Porter 5 Forces will always apply. # Effects of Porter 5 Forces Competitive rivalry helps you to understand your strength in the industry. Supplier power helps to understand whether your supplier has the ability to increase their input prices. Buying power helps to understand whether your customer has the strength to reduce your prices. The threat of new entry helps to understand how easily the new competition can come into the market and if you are making good profits, then how it can dent it. The threat of substitution helps to understand to what extent your customer can go to your competitor to try their products and services. So, understand each force and fit it as per your business. Assess your position and then put your resources in the direction of your strength. By this, your business will deliver long-term profits.