You know that to sustain long-term profit-
ability you must respond strategically to
competition. And you naturally keep tabs
on yourestablished rivals
. But as you scan
the competitive arena, are you also looking
beyond
your direct competitors? As Porter
explains in this update of his revolutionary
1979 HBR article, four additional competi-
tive forces can hurt your prospective profits:
•
Savvy customers
can force down prices
by
playing you and your rivals against
one another.
•
Powerful
suppliers
may constrain your
profits if they charge higher prices.
•
A
spiring
entrants
, armed with new ca-
pacity and hungry for market share, can
ratchet up the investment required for
y
ou to stay in the game.
•
Substitute offerings
can lure customers
away.
C
onsider commercial aviation: It’s one of
the least profitable industries because all
five forces are strong.
Established rivals
compete intensely on price.
C
ustomers
are
fickle, searching for the best deal regardless
of carrier.
Suppliers
—plane and engine
manufacturers, along with unionized labor
fo
r
ces—bargain away the lion’s share of air-
lines’ profits.
New players
enter the indus-
try in a constant stream. And
substitutes
are readily available—such as train or car
travel.
By
analyzing all five competitive forces, you
gain a complete picture of what’s influenc-
ing profitability in your industry. You iden-
tify game-changing trends early, so you can
swiftly exploit them. And you spot ways to
work
around constraints on profitability—
or even reshape the forces in your favor.
You know that to sustain long-term profit-ability you must respond strategically tocompetition. And you naturally keep tabson yourestablished rivals. But as you scanthe competitive arena, are you also lookingbeyondyour direct competitors? As Porterexplains in this update of his revolutionary1979 HBR article, four additional competi-tive forces can hurt your prospective profits:•Savvy customerscan force down pricesbyplaying you and your rivals againstone another.•Powerfulsuppliersmay constrain yourprofits if they charge higher prices.•Aspiringentrants, armed with new ca-pacity and hungry for market share, canratchet up the investment required foryou to stay in the game.•Substitute offeringscan lure customersaway.Consider commercial aviation: It’s one ofthe least profitable industries because allfive forces are strong.Established rivalscompete intensely on price.Customersarefickle, searching for the best deal regardlessof carrier.Suppliers—plane and enginemanufacturers, along with unionized laborforces—bargain away the lion’s share of air-lines’ profits.New playersenter the indus-try in a constant stream. Andsubstitutesare readily available—such as train or cartravel.Byanalyzing all five competitive forces, yougain a complete picture of what’s influenc-ing profitability in your industry. You iden-tify game-changing trends early, so you canswiftly exploit them. And you spot ways toworkaround constraints on profitability—or even reshape the forces in your favor.
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