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Note: Porter five forces is an industry analysis technique that can be used to quickly understand the expected nature of competition in your industry, for an overview of this technique click here "What will happen to your profits if the nature of competition in
your
industry changes?"
Great! You are using the porter five forces model to complete your industry analysis. Now let's look at the "Rivalry amongst existing firms" in your industry. The rivalry amongst existing firms analysis will help you to understand the risk that your competitors may compete for market position and if their competitive tactics are likely to be effective. You will find that your competitors may compete for market position using tactics such as;
Read on to discover how likely it is that your competitors will use these tactics and successfully lure your customers away. Industry Rivalry Example (using the porter five forces model)
Let's explore Industry Rivalry in more detailPlease review each of the factors that affect industry rivalry in more detail and use our free template to assess the risk of rivalry in your industry.The following factors will help you to analyze your industry rivalry, click on each for more details and ignore those not relevant to your industry. What makes a good leader has provided strategic planning templates for each of the forces in the porter five forces model. The industry rivalry template is at the bottom of this page, take me there
Industry Growth RateIf your products are in the early stages of the product life cycle, i.e. your industry is in a growth phase, then their will be room for all businesses in your industry to grow. This will result in a low risk of competitor rivalry. As your industry matures, demand flattens or even goes into decline, the only way for one business to grow is at the expense on another, (win / loose). In mature and declining markets, there will be a lot of rivalry in the industry. High Fixed CostIf the fixed cost is a high proportion of the total costs for the industry then each competitor will seek to maintain volume, which will drive higher competitor rivalry. Alternatively, if fixed costs are only a small portion of total costs then the industry is likely to reduce supply when demand drops, reducing the risk of competitive rivalry. Intermittent Over CapacityIntermittent over capacity exists in industries that have the same capacity all year and supply to a seasonal demand, or in industries where supply can only be increased in large lumps, such as adding an extra shift to a car manufacturing plant. During the periods of over capacity in the industry (too much supply) there is likely to be increased competitor rivalry. Product DifferencesAre your and your competitors products/services similar or are you easily able to differentiate your products and services? If your customers perceive that your products or services are different to your competitors and your customer values that difference, then you have some protection from competitor rivalry. If your customer perceives that your products/services are essentially the same as others in your industry then competitor rivalry is more likely. Brand IdentityAre there any strong brands in your industry? Do consumers have a brand preference? In industries where the consumer has a strong brand preference there is a lower risk of competitive rivalry. Switching CostsWhat are the costs for your customer to switch to one of your competitors products? Switching cost is the amount your customer would have to spend to switch to your competitors products. The lower the switching costs the easier it will be for your competitors to attract your customers, increasing the risk of competitor rivalry. Informational ComplexityWhat is the information complexity of products in your industry? If products in your industry are hard to understand, say your product is business insurance, customers are less likely to invest time to try to understand the differences between products in the industry, reducing the risk of competitor rivalry. Concentration and balanceIf your industry only has a few competitors who are all happy with their market share then the risk of competitor rivalry is low. Alternatively, if there are a lot of competitors or any one competitor is not happy with their position in the market then there is a high risk of competitor rivalry. Industry CommitmentIf your industry consists of businesses that only cater for your industry then they are likely to be more committed to your industry and remain in the industry even if results are poor, increasing the risk of competitor rivalry. However, if your industry includes divisions of major global conglomerates then they maybe less willing to incur consecutive years of losses, which reduces the risk of competitor rivalry. Exit BarriersIf there are high barriers preventing a firm from exiting an industry it is likely that they will be prepared to operate at a marginal profit or loss and your should expect high competitor rivalry. An example, the firm has a large capital investment in plant and equipment and other buyers are unlikely to be interested in the equipment, Return to Index
Porter Five Forces ExerciseBefore you can complete an analysis of your industry rivalry you will need to identify which factors, above, are relevant to your industry. (Indicate below which of the following factors are relevant for your industry).
Strategic Planning Template for your Industry Rivalrywhat makes a good leader has provided free strategic planning templates throughout our site, the porter five forces model includes five templates. The industry rivalry template is provided for your use, below.
Where to from here?Why not complete your industry analysis by reviewing all five forces in the Porter Five Forces model? And update your SWOT analysis with all opportunities and threats that you identified while using the Porter Five Forces Model. |
Learn how to use the porter model to analysis and understand the nature of competition in your industry. The Threat of New Entrants into your Industry The Bargaining Power of Suppliers
Your industry analysis will identify opportunities and threats, make sure you update your SWOT analysis. SWOT Links SWOT template
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