How can you identify new entrants to your business? This is a crucial question for any business strategist who wants to stay ahead of the competition and protect their market share. In this article, you will learn how to use Porter's Five Forces framework to analyze the threat of new entrants and how to respond effectively.
New entrants are companies that enter a market or an industry for the first time, offering a new or alternative product or service to the existing customers. New entrants can pose a serious challenge to the incumbent firms, as they may have lower costs, higher quality, better innovation, or more customer loyalty. New entrants can also disrupt the industry structure, changing the rules of the game and forcing the incumbents to adapt or exit.
New entrants are a threat because they can reduce the profitability and growth potential of the incumbent firms. New entrants can capture market share, lower prices, increase costs, or create new customer segments that the incumbents cannot serve. New entrants can also erode the competitive advantages and barriers to entry that the incumbents have built over time, such as economies of scale, brand reputation, customer loyalty, or patents.
New entrant is a good thing .It helps in building a entrepreneur mind set.It makes the existing mindset of an enterprise to change with times .Inovation to new ways of expanding and growing business is the key.New entrepreneurs need to be welcomed and you as a old player in the sector need to look as new ways of holding on to your share of the market or even expanding it.You don't expect that if there is a set buisness model there cannot be something else.The market is always changing and changing the way you look at the market is the key.
Porter's Five Forces is a widely used framework for analyzing the competitive forces that shape an industry. This framework consists of five factors: industry rivalry, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and threat of new entrants. Examining each factor can help assess the attractiveness and profitability of an industry, as well as the potential and intensity of new entrants. The threat of new entrants depends on entry barriers, expected retaliation, and entry incentives. Entry barriers are obstacles that prevent or discourage new entrants from entering an industry; these may include high capital requirements, strong brand loyalty, patent protection, or government regulations. Expected retaliation is the reaction of incumbent firms to the entry of new competitors; this could be price wars, advertising campaigns, product differentiation, or alliances. Lastly, entry incentives are factors that motivate or attract new entrants to enter an industry; these could be high profit margins, low entry costs, unmet customer needs, or technological innovations.
From Porter's standpoint, industries that are low in supplier power, entry, buyer power, substitute products, and competitive rivalry are where any business would thrive. By starting with understanding the strengths and weaknesses of the forces affecting the industry, the company can then understand its position relative to the industry, thus allowing it to understand its competitive position better. When going through the exercise of identifying competitive rivals, both direct and indirect have to be considered. Gather as much information on a competitor that includes the 4 p's of marketing, market share, and so on. The more granular, the deeper your understanding will be of where you may or may not have a competitive advantage.
Once you have identified the threat of new entrants, you need to develop a strategy to defend your position and maintain your competitive edge. There are various ways to respond to new entrants, depending on your goals, resources, and capabilities. For instance, you can raise the entry barriers by investing in core competencies or strengthening your brand image. Alternatively, you could reduce the entry incentives by lowering prices or expanding the product range. Additionally, you can accommodate the new entrants by focusing on niche markets or forming partnerships.
If there is a new entrant and they are succeeding it self means they are doing something diffrent from your out look and model in terms of the market.Yes the best way to reduce loosing your market share is by improving and doing things better then what the new entrant is doing or offering and the next best thing is to offer collaboration and merge their idea with your .In this way you can maintain your market and tap into the new avenues of market opened
It depends upon the selling point of new entrants. If new entrant is giving deep incentives for pushing sales then they might not be sustainable in longer run. However for short term it’s important to keep product quality, service and supply chain in order to ensure no disruption to the existing business. Revenue and Profitability will go down in short term hence keeping stakeholders updated is required to manage expectations. Organization also need to ensure that team’s morale should not go down hence including then in progress is equally necessary.
Finally, you need to keep an eye on the new entrants and their activities, as they may change their strategies, improve their performance, or introduce new products or services. You can monitor the new entrants by using various sources of information, such as industry reports, trade journals, customer feedback, or social media. You can also use tools such as SWOT analysis, PESTEL analysis, or benchmarking to compare and contrast the new entrants with your own firm and the industry norms.
Be closer to market. Listen to your customers. Focus on their needs & gaps rather than selling what you have. Harness the relationships built over the years Do not dismiss the threat especially in front of customers. Acknowledge it & play on your strengths. DO NOT discuss negatively the new entrant in front of customers. Focus your pitch on what you do.
New entrants may not be a threat immediately in an existing market, however it is important to watch their moves in terms of their short term and long-term strategies and implementation especially when they are funded heavily in their initial years of operation. Also, if a company has an excellent value proposition, strong service backup and an innovative mindset, it need not get really too hassled with new entrants. Moreover, the customers who prefer quality over price do not really like to change their service partners.
As a company you may feel the new entrant to be a threat but on a broader perspective it's a wake up call that you have not been updating your strategies with the growing times.You need to keep a watch on key area and look for suggestion with your employees .Keep a look out of some one who come with a good idea cause you never know one such idea can change the cource of your buisness.You have so manny examples such as Tesla ,Facebook ,watsapp ,Google .They where all ideas rejected by the then generation of thinking but today they are the present and thinking they will only be future is a foolish thing as there will always be something better and those who look for ways of being the better will always stand tall.