Entering into the market: Force evaluation

Entering the Market: Attractiveness

Primary objectives and targets set when attempting to enter into any market are the main focus of gaining advantages.  Attractiveness of any market can be evaluated in a variety of ways but one in particular comes to mind.  Micheal Porter's 5 forces model for evaluating attractiveness is based on 5 key business principles that are commonly known.

These are: Buyer power, Supplier power, Threat of new entrants to the market, Threat of substitutes, and the Rivalry among existing competitors. 

Buyer Power is simply the customers ability to either buy a product or service or not.  Buyers have an ability to affect the price they pay for an item.  Some factors of buyer power include the sheer number of customers, their sensitivities to the price of an item or service, how big an order is, and the availability of substitutes in the market.  Companies will attempt to reduce or combat against buyer power by creating Switching costs or costs incurred for changing products or brands.  These can be tangible or intangible.  Some companies like airlines have rewards for maintaining customers loyalty called loyalty rewards or customer rewards.  Gas stations have rewards cards, Grocery stores like Winn Dixie, and Airlines utilize these customer rewards systems.

Supplier Power is the supplier's ability to control or affect change on the price of raw materials.  The supply chain itself consists of that which is needed to bring raw materials and finished products to the market or the business.  These can be direct or indirect services.  Suppliers can affect the price of raw materials, labor, and services needed to provide the materials and transport of them to the customer or business.  Suppliers can greatly influence the price they charge for these.  Some factors that may influence supplier power are the number of or totality of suppliers in a market, how unique or ordinary the suppliers services or products are, and again the availability of substitutes.  It is not uncommon for suppliers in some markets to influence prices or the quality of materials available as well as the availability of the materials.

Threat of New Entrants is a threat situates around the power of competitors to enter into the same market.  This threat is very high when it is easy for a company to enter a market and it is low when their are Barriers to Entry that are significant enough to reduce the ease of entering a market.  Barriers to entering a market are those things which would allow a customer to set a product or service a part from the competitors and force them to provide the same feature or characteristic in order to compete successfully.  If a Brick and mortar company does not have an online presence it is at a disadvantage to its competitors who are already operating in an online environments.  This would be a barrier to entry for them in the particular market.

Threat of substitutes is just the threat to a market of being too many substitutes for a product or service.  If you are developing a company that has an application for stucco removal or a service for tree removal how many others are in the same market and what do they offer in comparison to your company should be considered.  This is a threat to a company because a customer can just take another alternative to you if your prices are high, your service is not as unique, or you have no competitive advantage.  You can reduce the threat of a customer substituting your product or service for another by providing some other unique added value, like a rewards system or discounts or anything else that competitors are not offering.

Existing competitors and Rivalry among them is considered to be high or extreme when when competition is thriving in a market and is thought to be low when competitors have grown complacent in their strategies.  When considering  a market to enter into to make money online, it is best to look at how many competitors are already in that market or niche.  This way you can get an idea of how they are carrying them self or operating and what advantages they may have.  Product differentiation is key in highly competitive markets.  This occurs when you have a unique difference or set of differences in the product or service offered in comparison to the competition, which influences its demand.

So when entering into a market and checking for how attractive it is size is a factor of attractiveness and is customer's demand for the product or service.  offering a wide variety of products can help in differentiating one company from another and set them apart from the competition.  if any of these forces are high then competition is high and vice-versa.   A careful analyses of these 5 forces is necessary to evaluate a markets attractiveness but are not the only evaluative measure.  industry analysis, environmental forces analysis and market share analysis are also primary areas of research when entering in to any market.

Entering the Market: Attractiveness

Primary objectives and targets set when attempting to enter into any market are the main focus of gaining advantages.  Attractiveness of any market can be evaluated in a variety of ways but one in particular comes to mind.  Micheal Porter's 5 forces model for evaluating attractiveness is based on 5 key business principles that are commonly known. 

These are: Buyer power, Supplier power, Threat of new entrants to the market, Threat of substitutes, and the Rivalry among existing competitors. 

Buyer Power is simply the customers ability to either buy a product or service or not.  Buyers have an ability to affect the price they pay for an item.  Some factors of buyer power include the sheer number of customers, their sensitivities to the price of an item or service, how big an order is, and the availability of substitutes in the market.  Companies will attempt to reduce or combat against buyer power by creating Switching costs or costs incurred for changing products or brands.  These can be tangible or intangible.  Some companies like airlines have rewards for maintaining customers loyalty called loyalty rewards or customer rewards.  Gas stations have rewards cards, Grocery stores like Winn Dixie, and Airlines utilize these customer rewards systems.

Supplier Power is the supplier's ability to control or affect change on the price of raw materials.  The supply chain itself consists of that which is needed to bring raw materials and finished products to the market or the business.  These can be direct or indirect services.  Suppliers can affect the price of raw materials, labor, and services needed to provide the materials and transport of them to the customer or business.  Suppliers can greatly influence the price they charge for these.  Some factors that may influence supplier power are the number of or totality of suppliers in a market, how unique or ordinary the suppliers services or products are, and again the availability of substitutes.  It is not uncommon for suppliers in some markets to influence prices or the quality of materials available as well as the availability of the materials.

Threat of New Entrants is a threat situates around the power of competitors to enter into the same market.  This threat is very high when it is easy for a company to enter a market and it is low when their are Barriers to Entry that are significant enough to reduce the ease of entering a market.  Barriers to entering a market are those things which would allow a customer to set a product or service a part from the competitors and force them to provide the same feature or characteristic in order to compete successfully.  If a Brick and mortar company does not have an online presence it is at a disadvantage to its competitors who are already operating in an online environments.  This would be a barrier to entry for them in the particular market.

Threat of substitutes is just the threat to a market of being too many substitutes for a product or service.  If you are developing a company that has an application for stucco removal or a service for tree removal how many others are in the same market and what do they offer in comparison to your company should be considered.  This is a threat to a company because a customer can just take another alternative to you if your prices are high, your service is not as unique, or you have no competitive advantage.  You can reduce the threat of a customer substituting your product or service for another by providing some other unique added value, like a rewards system or discounts or anything else that competitors are not offering.

Existing competitors and Rivalry among them is considered to be high or extreme when when competition is thriving in a market and is thought to be low when competitors have grown complacent in their strategies.  When considering  a market to enter into to make money online, it is best to look at how many competitors are already in that market or niche.  This way you can get an idea of how they are carrying them self or operating and what advantages they may have.  Product differentiation is key in highly competitive markets.  This occurs when you have a unique difference or set of differences in the product or service offered in comparison to the competition, which influences its demand. 

So when entering into a market and checking for how attractive it is size is a factor of attractiveness and is customer's demand for the product or service.  offering a wide variety of products can help in differentiating one company from another and set them apart from the competition.  if any of these forces are high then competition is high and vice-versa.   A careful analyses of these 5 forces is necessary to evaluate a markets attractiveness but are not the only evaluative measure.  industry analysis, environmental forces analysis and market share analysis are also primary areas of research when entering in to any market.