Which products and services are restrained from entering the market? Which products and services received subsidiaries from the government? Which products and services are protected by the government so that they may grow huge? All these, and many such more questions can be answered by analyzing the political and regulatory profile of the nation. The past trends also hold similar importance. It is also important to know the form of government that prevails. This carries foremost importance as the freedom of media is dependent on it; which derives the customizable promotions.
Details of Porter’s 5 Forces are presented as below:
Bargaining Power of Customer
One of the most important facts to know about the market being entered is the situation of the customer in that market. A number of questions can be surveyed to analyze the customer of the market. Data can be gathered not just through surveys, but preferably through the archived historical data. The first question that a business should ask about the market is that is the market a buyer’s market or a seller’s market? In a buyer’s market, sellers are the price-takers, while customers are the kings.
Demand stands elastic in such markets. Contrary to this, in a seller’s market, the demand is highly inelastic as the customers take what the producers produce with no degree of control over the processes or marker prices. In such a case, customers are the price-takers. The later situation is hardly valid in most of the countries. However, in the Asian states, there are still certain economies in the growth stage, therefore, are protected by the government; and in such cases, the said markets are the sellers markets.
Other questions could be regarding the loyalty of a customer to a particular brand, the purchasing power and ability to pay premium, source of attraction for the customer, etc. All these and many such more lead to the enterprise actually adjusting the product to the customer needs and preferences. With the increasing impact of globalization, on a general note, and the level of customer awareness has drastically increased the bargaining power of the customer. Since the customer is now more aware then what he was a decade back, he can compare and negotiate products based on the viewed specifications.
This has resulted in drastic reduction in profit margins. In such a case, it is important for the manufacturer to reduce costs as much as possible and give the best mix in the product with the cheapest price. This can be obtained by using various concepts that have taken birth recently, such as outsourcing. Also the products and services can be bundled with value added services to cater to such markets that provide the differential edge to the manufacturer over the competition.
Bargaining Power of Supplier
The elimination of geographical boundaries has led to prolific change in the value chain concepts. With online and open view of who is providing what products and services, suppliers are also in a negotiable condition, whereby, they can bargain to get the best prices from the producers for the provided raw-material. As the differentiating factors are reducing, and simultaneously products and services are becoming more and more homogenous, it is easier for suppliers to switch from one manufacturer to another based on the quoted price and quality assurance.
For a manufacturer, it is important to retain their suppliers for assurance of consistent quality. Once the value chain is established and a manufacturer has relations with the raw-material provider, it becomes increasingly difficult and costly, with the passage of time to switch the supplier. Primarily, the increasing switching cost is due to the fact that bringing in a new supplier would require time and cost; the process of tendering and quality checks and building that relation. Therefore, at times, manufacturers agree to pay premium to their suppliers for their retention over a longer period of time.
The bargaining power of the raw-material supplier becomes a major concern for a manufacturer particularly if he decides not just to export the product or service, but to have a manufacturing facility in the country. Then it is a difficult question to address that whether adapt to new/local suppliers for the new facility or export the material through from the trusted supplier. In either of the case, since one of the two suppliers get a positive response, their position becomes better in terms of bargaining over the price.
Such incidences do lead to adjustments, as they enterprise may decide on deploying a plant that uses an alternate raw-material for producing the same product due to the supplier of the original material being a not-so-cooperative person and exports are expensive.
Competition within Industry
Competition is a critical aspect to analyze while entering into a market. It is one of those factors that bend the product towards an adjustment; allowing it to create a USP (Unique Selling Proposition) and live on it. No product without a USP can survive for long.
Consider example of product A and B; if they are homogenous and A doesn’t have a USP, B would be quick to cash on that, creating one of its own and capitalizing on it to capture a larger market share. Competition is dynamic in nature and no differentiating feature is a sustainable advantage till the magic recipes are kept unknown. But if they are kept unknown, no one would know it is a USP. When an enterprise attempts to expand markets by entering into a new geographical region; it becomes important for it to analyze the existing competition. There can be several conclusions derived from this research.
This would tell about the USPs currently being used by different competitors and the value of each to the customers. It may also possibly highlight any potential USP that has not been in the lime-light and can be cashed upon. The existing USPs in the market, if valued by the customers are essential to exist in the product before launched. Alongside, it is also important to develop new USPs in the new products so that they can have a competing edge. By the time, the USP isn’t sustainable anymore (indulged by competitors in their products and services), the enterprise can work upon attaining new USPs for the future.