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Threat of the competition in a new market

When you are entering a new market, you will have to take some matters into account. Your company cannot just enter a market without being prepared.

It is like entering a jungle. If you go unprepared the chance, that you are not going to make it, is big. It works the same way in the business area. A lot of companies have many questions before they enter a new market.
What should a company do? Are there any strategies before entering a market? How should we handle it? What is our biggest competition?

There are many strategies that will answer this question, but in this article I will explain Porter Diamond’s competitive force.

Porter Diamond’s competitive force is divided in 5 different points you have to take into account. These points are:

  • threat of new markets
  • competitive rivalry
  • threat of substitution
  • supplier’s power
  • buyer’s power

Threat of new market

Your company is entering a new market. You will have to find your way in this market. You have to choose which market you will enter. For example: you invented a new smart phone. You are entering an IT market, but the specific market is the phone market. You are still new, so many customers do not know your name, logo, brand etc..

You will have to take into consideration that some markets are so big, that it is difficult to stand out. There is the possibility that your company would not stand out and that the business would not work out for you. Although, this must not scare you. If you are confident of your product and you know that there will be customers for your market, you can survive. Taking a risk can lead to success. A strong marketing department is the key for success in a new market.

Competitive rivalry

Before entering a new market, you have to check your competition.

Let’s go back to the smart phone example. Which companies are your competition? You have to compare your product with the respective product of your competitors. Following terms have to be compared: price, quality and target group.
There will be bigger competitors. Apple, Samsung are the big names in the smart phone  market. You will have to position yourself in the market based on the information you have researched.

Threat of substitution

Your product can be substituted by another product. It means that the need can be satisfied by a substitution. You might lose some customers, because they will buy the substitution. If you sell a smart phone, some customers will not need a phone which only has the ability to call. Smart phones can do more than the execute calls. Some people will buy a tablet for the apps and a simple phone for calling.

Supplier power

Finding the right supplier can be important for your company. Especially, if you want to have great quality. You have to compare different suppliers. You have to build a trustful relationship with your supplier and be satisfied with their product or service. If you cannot trust your supplier, how will you sell your product or offer your services with confidence?

You have to be satisfied with your supplier and their product or service in order to be happy with the quality of your production. If you are happy about what you offer, you can sell your product with confidence which will give a good impression to your customers.
If the quality of the software of your smart phone does not your expectations,  why will you work this supplier?

Another threat is that your supplier might be the same of your biggest competition. How can you distinguish yourself from the competition? Well, you can have a special deal with your supplier. It depends on the relationship you have with your supplier. Like I have already mentioned, try to be satisfied with your supplier, your business relationship is important.

Power of buyers

Buyers have a lot of power. Like Michael Le Boeuf said: “Treat your customer like lifetime partners”. If you do not have any buyers,  your company will not succeed. If there were not any buyers, your company would not have any incomes. If the company had not any incomes, they would have more costs than revenues, which is not the goal of any company. Therefore, buyers have an influence on your company and their power is a threat.

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