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Geographic scope: global, national, regional.The latter involve corporate buyers and use different selling channels. Motor oil used in consumer cars is different from those used in trucks.Each industry will need its own strategy. Rule of thumb: Where there are large differences in forces, you are likely dealing with distinct industries.Define the industry by its product scope and geographic scope.
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Michael Porter outlines the process on how to apply them to analyze an industry.ġ. How does the threat of new entrants work in the five forces industry analysis? The Five Forces are used to study the profitability of any industry. Steps in Industry Analysis: What Do New Entrants Have to do With Your Business? This is stronger in industries with low growth or high fixed costs.Retaliation against new entrants by incumbents.Existing relationships in the value chain (eg distribution partners).Branding, customer reputation as the “safe choice”.This can take multiple forms: spreading fixed costs over large volume, bargaining power over suppliers, more efficient technologies at scale.Increases costs, since incumbents have to raise entry barriers.Lowers prices, since higher prices attract newcomers to arrive and take profits.An industry can be attractive to incumbents, while being unattractive to new entrants because of entry barriers.New competitors, either upstarts or incumbents from other industries.What is the threat of new entrants? The last of Porter’s five forces, the threat of new entry is one that businesses worry about consistently that another similar business will come and take your customers. As one of the five forces, the threat of new entrants is a critical concern for many businesses, especially in fast-changing industries. The threat of new entrants is the possibility of new, direct competitors to your business. What is the threat of new entrants? What does it mean for your business?
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Like this article? Sign up for a free trial here. Shortform has the world's best summaries of books you should be reading. This article is an excerpt from the Shortform summary of "Understanding Michael Porter" by Joan Magretta.
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