Threat of new entrants in Porter Five Forces Model
The nature of human beings is to resist changes when facing something new in their lives. Marketers facing the same issue too. If you created a new product then made good success and it resulted in a good profit for the company you work in, definitely you will face the resistance to change when you see you product failing due entrance of new products that are taking the market share from you. This is because no one in the world maintained as a star (in B.C.G. Matrix) all of the time. So if you want to maintain your product’s success, you should know that you need to observe, predict and analyze the threat of new entrants to your sector, search for their plans, predict each move they could take before they do it.
Factors affecting the threat of new entrants in Porter Five Forces Model:
The threat of entry of new products (new competitors) to your business is affected by many factors which can be summarized in:
Economy of scale :
When the industry that you will market your product/ services is having wide economy of scale, this is helping companies to select different pricing strategies for their products and services, and also it helps them to develop different marketing strategies (Cost leadership, differentiation, or focus marketing strategy) for their products or services.
e.g. in the Car industry, you see a wide range of economic prices, so ‘TOYOTA’ cars are more economic for most of customers (but their price are matching the middle class of societies) while ‘BMW’ is matching special class of customers ‘High class’. When your market has a wide scale of economy, the new entrants‘ opportunities will increase.
Product Differentiation / Brand Loyalty:
- Does your product have unique competitive advantages?
- Does your product have unique characteristics than any other competitor?
- Are your customers loyal to your brands? Do they prefer your brand than any other competitor?
When you have a differential advantage than competitor, and your customers are loyal to your brand, the opportunity of new entrants‘ entry will be minimized. And if the new entrants started their business to compete with your brand, they will lose their success opportunities because you have a differential competitive advantage and customers’ loyalty with your customers.
If your product’s price in high and provides a high quality service, then any entrant provides the same quality as yours, with less price, then it will affect your business 100%.
But if you provide a product with lower cost and intermediate quality, the opportunities of new entrants with fewer prices will be decreased, because your customers are satisfied with your price and the switching cost possibilities will be decreased.
This is very important, because the main competitors are always competing through the retailers by providing special offers and bonus to them to impose their products as the only one available in their stores (Push Strategy). So, if this problem exists in your market, definitely the opportunities of new entrants will be decreased.
Distributing channel access:
If you have a strong relationship with your distributors, you can control the distribution of your competitors; this is called ‘Push Strategy‘. The push strategy depends on pushing your products to the retailers or wholesales and preventing or minimizing the opportunities of pushing competitors’ products to wholesalers or the final channels of distributions to end consumers.
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