Hello and welcome to this session on Marketing where we ...

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Hello and welcome to this session on Marketing where we will talk about understanding the environment you are marketing your product in, as well as the compe tition that comes along the way. Let us talk about the major beverage brands that we have. You think it is easy for a company like Coca Cola to stand up there just with Coke under its name? Certainly not. In this fierce strife to be the market leader, brands like the Coca Cola company have constantly come up with beverages targeted at a particular segment of the market. The same way Cadbury has a range of its chocolates unlike the conventional chocolate slab it started from. It has variants like Fruit & Nut, Caramel, dark chocolate, Orange peel and many more, each aimed at a different mood or a different need.


So, get yourself ready to learn about the fierce competition in the market that exists. In an ever evolving global economy, the product & solution space across verticals is becoming increasingly competitive.

As new businesses try to set up and grow based on differentiators solving a particular consumer challenge, there are so many competitors sprouting up left right & center. As a marketer, you need to understand

how the Competition in your space is going to affect your marketing activities. For the same it is very important to know the power of your environment and your competition, and to look at it from a company’s standpoint. Let’s talk about a perceptual map of how to think of competition with a simple example.

Imagine you want to become the next big coffee brand in India. There are already many chains of companies like Starbucks and Cafe Coffee Day who already have their own coffee. Then there are several brands such as Nescafe & Bru who sell coffee across India. Coffee generally has two elements of differentiation, the aroma & the flavour.

To create a new type of coffee, that differentiates it from the rest, you can plot all the current coffee brands in a graph, where the X axis denotes the flavour moving from mild to strong & the Y axis denotes the aroma, moving upwards from mild to strong. Then you essentially have 4 quadrants to map your competitors into. Say there are 4 players Nescafe, Bru, Illy & Girnar that you want to map across 4 quadrants as shown in the diagram. You find all of these 4 players fall in quadrants 1, 2, 4. Hence there is no major coffee production that has mild flavour but strong aroma, which is our 3rd quadrant.

From this simple exercise, let’s now move to one of the most popular frameworks that are used to understand the environment and thus competitiveness of a particular product or solution, Porter’s 5 Forces Model.


According to this model, industry attractiveness is determined by Five forces in that industry, and these forces typically interact with each other. The five forces are –

● Threat of entry

● Buyer power

● Supplier power

● Threat of substitutes

● Competitive rivalry

The more forces that are favourable to the entrepreneur, the more attractive that industry is. Now, let’s look at them one by one.

Threat of Entry New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on Prices, costs, and the rate of investment necessary to compete.

Think about the realty sector. A few years ago, there were just two major players, 99acres and Magicbricks catering to online aggregation of properties being rented/leased or sold. But suddenly many other players entered the foray such as Housing.com, nobroker.in and many like them. The threat of entry of new


entrants puts a cap on the profit potential of an industry, as more and more player s come in to take a slice of the pie.

Take the Samsung Vs Apple example in the Smartphone segment. Samsung with its introduction of the Galaxy Series was a treat to Apple’s market share in the premium buyer segment. An effect of this can be seen in Apple’s new launch in 2016 of iphone 5se which is priced at 60% of the iphone 6 Series.

However, expecting no competition to enter the domain is also unrealistic, but knowing your competitive scenario at the time of your entry into market is critical.

The threat of entry in an industry depends on the height of entry barriers that are present and on the reaction entrants can expect from incumbents. Like, if the online realty players have a great offline network as well, then it is a barrier that the others cannot easily replicate or match.

While assessing for your company, the question you need to ask is – Whether it is easy or difficult to enter this industry?

If you are planning to launch and build a sustainable product then it is better to have a high barrier to entry to begin with.

People want what’s best for them, so companies strive to change and adapt to the needs of the customers. We heard about how new entrants like housing.com & nobroker.in in the realty sector put pressure on major players like 99acres and Magicbricks. While we move on, we talk about the other 4 forces of the Porter’s 5 forces model using industry examples.


Next force in the model is Buyer’s power. Powerful customers can capture more value by forcing down prices, demanding better quality or more service (thereby Driving up costs), and generally playing sellers off against one another.

Let us take the example of the power industry. Most of the coal which is produced in India is purchased by the thermal power industry. Thermal power plants are major buyers of coal. So, in India due to limited number of large thermal power plants, they are very powerful buyers and if the domestic mining companies increase the price of coal to a high level, power plants will import coal from outside.

Walmart is also another great example of buyer power. Walmart is extremely powerful as a buyer. It has Enormous reach and reaches thousands of end users. It also buys in large quantities and Controls how a customer accesses the brands and products that it stocks. This means that Walmart can Dictate prices, delivery times and Product quality from its suppliers. Suppliers cater to this pressure by basing their operations close to Walmart headquarters and allowing easy access to the company’s purchasing departments to test products and negotiate terms.


Large-volume buyers are particularly powerful in industries with high fixed costs, such as telecommunications equipment, offshore drilling, and bulk chemicals. The question you have to ask is - Do your buyers have the power to set terms and conditions?

Number three is the supplier’s power. So, the business that you are in — how easy or difficult is it for your suppliers to drive up prices? Again, in the case of travel portals, say the suppliers of airline tickets are limited due to limited number of companies but due to high competition amongst themselves they cannot, they choose not to adopt of portals. On the other end of it, say a company or organisation of Indian Railways, for example. Now Indian Railways is basically a monopoly. It can actually dictate terms with travel portals and end up pushing for much lower commission rates.

Threat of substitute is something that also needs to be analysed within the Industry. A substitute performs the same or a similar function as an industry’s product by a different means. Substitutes are always present, but they are easy to overlook because they may appear to be very different from the industry’s product.

Let’s take the example of Travel agents. Whether online or offline, they were threatened when airlines themselves became the substitute of travel agents. So, the question here should be – Is it easy or difficult for your product to be substituted?

For any company, it is preferable to have less threat of substitutes. It is very important to define your industry narrowly because it will clearly help you focus as to who your principal competitors are which in turn will help you in assessing the competitive rivalry.

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Number five is competitive rivalry. Take the example of social networking sites. Facebook commands a loyal user base across several user demographics and geographies.

However, competition from Google+ and Twitter can cause a reduction in the average time spent by active users on the FB platform, as these platforms offer unique sets of features. Further, a number of social networks are cropping up that target a niche user base. For example, Snapchat appeals to a younger audience and is more popular among females. We expect this trend to persist and hence Facebook could see competition intensifying within different user demographics.

Question you need to ask yourself is your competitor rivalry intense?

As a marketer you would prefer less competition, but reality is different. Hence, based on all five forces you have to carefully assess your industry and find just how attractive or unattractive it is. Analysing Porter’s 5 forces for your business, as a Marketer can give you deep insights into which types of marketing communication, offers discounts, tonality and emotions with your target customer bases would work best.

So the first one is the threat of new entry, so how easy or difficult is it for any competition to basically enter an industry and increase the population that's already existing as well as probably reduce margins for your business. So for example, take the example of an online travel portal. It probably does not have a lot of high entry barriers. That's the reason why you see a lot of them in the industry today making it hard for any single one to end up dominating the market. Also one ends up doing is that it ends up reducing

© Copyright 2015-2016. U Education Management Pvt. Ltd. All rights reserved


margins for the different the companies that are actually operating the s pace because each of them wants to offer more discounts to acquire users.

Number two is the second force in this model is the power that is held by the buyers in the industry. So what I mean by that is the customers, who are actually transacting, how many of them are able to be forced on prices or demand better service quality or a better product quality, etc. thereby driving up costs, and generally what they do is that they also end up making these companies go against one another and compete against one another even more strongly.

So again, take for example of an online travel company. The customers typically end up having a lot of high bargaining power because they have many options to choose from just given the fact that, because the industry is much easy to enter, there are different companies who are actually coming up in the space and hence the users actually have the choice of switching across. So the cost of switching between companies is lower and hence the power in the end is high.


Number three is the supplier’s power. So the business that you are in — how easy or difficult is it for your suppliers to drive up prices? Again, in the case of travel portals, say the suppliers of airline tickets are limited due to limited number of companies but due to high competition amongst themselves they cannot, they choose not to adopt [?] of portals. On the other end of it, say a company or organisation of Indian Railways, for example. Now Indian Railways is basically a monopoly. It can actually dictate terms with travel portals and end up pushing for much lower commission rates.

The fourth example is — the fourth power is — actually the threat of substitutes. So substitute is basically very simple, it is something that a company or it’s a product that performs the same similar function as whatever you are building. So one example of this would be how travel portals used to actually sell hotels at one time, so you can actually buy rental accommodation through a travel portal and end up staying at a hotel. But, over time, there was a company that came in like Airbnb, and Airbnb completely changed that market in a way. So they built a product where payer to payer accommodation started competing with hotels. So, you would obviously want to prefer being in an industry where there is less then substitute but at the same time you need to be cognizant that substitutes can come from anywhere, and certainly you need to modify a product to see that.


Number five is competitive rivalry. So this is basically used to measure how intense is the competition currently in the industry. This is influenced by, say, the number of companies in the market, or their capabilities and the kind of products that they are building, which ends up determining how competitive is the is the industry as a whole. While you should keep looking for other substitutes you should also be cognisant of the competition. For example, if a person who's actually used to booking online travel hotels, there are hotels online web portals, he could easily switch to products like Vista Rooms or FabHotels. So, I think that's one of the examples.

Similarly, Facebook actually commands a huge loyal user base across many geographies and demographies, but it also faces competition from Google Plus and Twitter, and that ended up causing a reduction in the average time spent on the Facebook platform, because alternate platforms also offered very unique set of features over Facebook. If you look at it now, a number of social networks are popping up that target a very niche user base. So I think Snapchat is one perfect example of that. They basically targeted 18-25 year olds and it's very popular amongst women. So we expect these kinds of trends will continue to persist and FB obviously would see competition coming up from these kinds of users or these kinds of demographies.


In traditional slow growth industries like, say, the pharmaceutical sector, competitive rivalry would be really high again. And needless to say, in such sectors that heavy brand spends are needed for the companies to become market leaders. While talking about competitive rivalry one part is that you may not want to overlook relevant substitutes. For example, even bullet trains would be a competitor to the airline industry. So the question that you need to keep asking yourself is that ‘Is your competitive rivalry a competitor rivalry very intense?’ You may certainly prefer to work with this competition but at the same time you need to be cognisant that: what is the competition doing? And how can you improve than what they're doing?

To recap your learning’s in this session, you understood the importance of analysing the competitive environment surrounding your product to survive in this ever- changing environment. Through the example of entering into the coffee market, you saw how differentiating the product along the 2 elements of aroma and flavour enabled the brand to create a niche for itself.

You were also introduced to the Porter’s 5 forces to evaluate the industry competitiveness while entering the same. Within the 5 forces, first, you learned about the threat of entry which restrains the profits and market share of existing firms.

As an example, you saw housing.com and Nobroker.in cutting down the profits of the incumbent firms in the realty sector. Further examples of Amazon.in and Samsung showed you how offering range of products


and targeting a variety of consumers can put pressure on the barriers of entry thus making it difficult for other firms to enter.

Next, you looked at the buyer’s and seller’s power as a critical factor in driving down the prices or increasing the costs by demanding better services. As an example, you saw how the power industry being the sole buyer of coal exerts pressure on the domestic coal producers by threatening to import coal from outside.

Similarly, the example of Walmart demonstrated that having an enormous reach allowed them to dictate prices and demand better quality products from its suppliers. I hope from this you realized why having a weak buyer power is essential for a firm to enter the industry.

Next, you looked at why ignoring the potential substitutes for your product can be a dangerous proposition. Taking the example of Travel Agents, you saw how their existence was threatened when airlines themselves started a booking portal.

Finally, you saw how making sense of the competition around your product can be critical to your company’s success. Like for example, Facebook presence in social-networking was hardly challenged before Google+ and micro-blogging sites like Twitter came along. This certainly affected FB engagement with their users. Therefore, you should realize as a marketer you should prefer an industry having less competition.


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