Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a Market or market segment:
- Industry Competitors
- Potential Entrants
- Bargaining power of Buyers
- Bargaining power of Suppliers
The rivalry among the same segment have to be analyzed. The segment is unattractive if it contains numerous, strong or aggressive Competitors.
The threats of entrants have to be analyzed in order to identify the potential entrants. The most attractive segments is the one which have high entry barrier and low exit barriers.
The segment is attractive when there is less substitutes and it makes the better price for product.
Bargaining power of Buyers
The segment is unattractive if the buyer have more bargaining power.
Bargaining power of Suppliers
The segment is attractive if the supplier have no power towards materials supplied.
Identifying the competitors is an important task in marketing.
Identification should be based both on industry and market point of views.
Marketer should classify industries according to number of sellers, product differentiation, entry barriers, exit barriers, cost structure, globalization.
Competition reveals the broader set of actual and potential competitors in market and product category.
Analyzing the competitors should be based on strategies, Objectives, strength and Weakness.
A group of firms following the same strategy in a given target market is called a strategic group.
The objectives of the competitors have to be clearly identified for analyzing the competitors.
Such information are growth, profits, history, size, market share,etc...
Strength and Weakness:
It is necessary to gather the information about each competitors strength and weakness.
In general a company should make three variables when analyzing competitors:
- Share of market - Competitor's share of market.
- Share of mind - Response from customers.
- Share of heart - Preference of the Customers.
Choosing the competitors should be based on classifying the competitors based on there classes:
- Strong Vs Weak
- Close Vs Distant
- Good Vs Bad