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Porters five forces tool is a recommended tool used to analyze and comprehend areas considered crucial in every business. It helps business to analyze its competitive position, and strength the future business wants to progress.
When a business identifies where the power is, it can take the fair advantage of a situation of strength and try to work on its weakness. This will make the managers make informed decisions. Porter’s tool gets used commonly when introducing a new product in the market to evaluate whether the product has potential of making a profit.
Five forces analysis indicates that there are five distinct but interrelated forces that affect the business competitive performance. These forces are as follows:
Supplier power: this is the power when suppliers have to control the prices of goods. The marketer needs to assess how easy the supplier can manipulate the prices of their products. The number of suppliers in each key point mostly affects this.
The uniqueness of the products they produce and the cost incurred when one change from using one product to another. Fewer suppliers are capable of manipulating the price easily. The more one needs for supplier they become, the more powerful they are.
Buyer power: in this case, one evaluates how easy the buyers are to drive the prices down. This gets determined by the number of buyers and the amount of goods they buy. If a market has few and powerful buyers, the buyers are able to make the firm lower their product prices.
Threat of substitution: this occurs when current customers come up with different ways of doing what a manager is selling. If customers are able to come up with powerful products, then the ones currently supplying power get affected.
Threat of new entry: this is the ease in which new people get involved in the business one is carrying out. New entrants result in competition for customers and raw materials. When the cost to entrance demands little amount of money and time, new entrants will be extremely easy.
Functions of marketing channels can be considered to be barriers to allow new entrants in the business. Every marketer needs to have his own marketing channels. The new entrants find it hard to convince the existing market channels to market their goods, which are not well known by the customers. Existing market channels may refuse to stock and deal with the new entrants products, thereby, saving the existing marketers the threats of new entrants.
Marketing channels are the key influencer to the price of the goods. This is because marketing channels are the ones who buy the marketers goods in bulky. The amount of goods they buy makes them dictate the price at which they have to buy the products.
Marketing channels determine the power of wholesalers as suppliers. They dictate to wholesalers the price at which they will buy manufacturers products. They also offer transportation services to wholesalers who buy goods in bulky. They form a link between manufacturer, the wholesalers and the customers.
Marketing channels are particularly beneficial to the marketers as they help to minimize the chances of customers to come up with substitutes. This is because marketing channels do add value to the products produced by the manufacturer.
The customers get provided with goods in the shortest time possible thus having no need to come up with the substitutes. The channel marketers make customers develop loyalty to the manufacturer products. This is extremely valuable to the manufacturer as it ensures continuous purchase of consumer goods.
Channel distributors can be motivated by forming a partnership with them. In this case, the company forms an agreement with the channel distributors whereby the company honors the distributors demands. Since the channel distributors enter into business with an aim of making a profit, the marketing managers should honor their demands and provide them with strong support for them to achieve their goals.
Channels members can be motivated by being provided with free goods. This is beneficial to them because the extra free goods can be used to entice potential customers. They can also be motivated by providing them with bonuses whereby they get rewarded after achieving the marketers’ goals.
The marketers can motivate their channel distributors by initiating creative product promotions. This will make them improve their sales and their profit margin. The marketers can also create sales contests whereby the channel distributors come together, share ideas, and come up with solutions to any challenge they face. The marketer can also motivate channels of distribution by ensuring they are well distributed.
This is crucial as it reduces rivalry among them it also ensures that channel distributors are making a decent profit. They can be motivated by conducting visits to them. In these visits, the marketers advice them on product display. They can motivate the channel distributors by training them on how they use the product or preserve them in case they deal with perishable goods.
The intermediaries carry out different activities that lead to improvement of utility. Some of these activities include breaking the bulk of goods. This is extremely vital as these leads to meeting customer needs effectively. The channel distributors buy goods in large quantity, which they then divide into small portions, which customers can afford to buy.
Channel members improve the utility by packaging products. This is done when breaking the bulk. They pack the goods in colorful colors, which attract the customers.
This attracts customer and lure them to purchase the well-packaged goods. Customers prefer goods, which are attractive to their eyes. This is crucial as it relieves the company the burden of packaging making it concentrate on other issues.
A channel member improves utility by storing the stock. This is Important as it helps to maintain a continuous supply of goods to the customers. It also relieves manufacturers the expenditure on renting vast stores to store goods.
Bringing goods closer to the customers. Channels members bring goods closer to the customers. This makes customers shop conveniently. The goods are brought closer to the customers. This is important as the customers are saved the costly expenses of transportation.
Channel members play a vital role in utility improvement through product promotion. Through product promotion, they educate the product users, inform them on where to find the manufacturers products and on how to achieve maximum value by using the product well. A channel member adds value to product by branding the products.
This helps customers to identify these products well, and this make them develop product loyalty. This makes entry of new marketers hard as they find it hard to convince the existing product users hard to convince to use alternative product. It also makes exit impossible as the firms whose products with significant market share fear that by exiting a new firm may come and reap the benefits they had been reaping.
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