Porter’s Five Forces model can help you understand the competition you face, especially as you enter a new market. Three of the forces–direct competition, new entrants to the market and indirect competition–should be obvious. The other two–suppliers and buyers (customers)–are often not.
Here are two examples for a PR/advertising agency:
- Suppliers. About 10 years ago, more and more print companies started offering digital marketing as a service. That put them in direct competition with the agencies that were ordering signs, posters, direct mail, etc. from them. As a result, our agency and several others we know no longer use any printer that sells digital marketing or other related services.
- Buyers (customers). For an agency, this situation occurs when a client spins out their in-house PR/marketing staff into its own standalone agency. Not only does the client now outsource work to this new agency, but this new agency also is going after the same industry clients you are.
Both suppliers and buyers also have their own bargaining power–the former can raise their prices, and the latter can become price sensitive. As a result, you can see that you also have to factor in suppliers and buyers when determining the competitiveness and attractiveness of a market.
Graphic by Greg Emmerich