Application of Porter's Five Forces Model in Marketing

The author of this article describes how marketing practitioners apply Porter's Five Forces Model. Interested readers can take a look at it. If you have any thoughts after reading it, please leave a message to communicate.

Friends who work in strategy, brand, marketing, operations, etc. often come across an analytical tool, Porter's Five Forces Model, which is used to analyze and understand the competitive situation in the industry, so as to formulate effective strategies and decisions. It can play an important role in competitive strategy, marketers, product management, competitive intelligence, human resource management, supply chain management, etc., and is a powerful analytical tool for multiple work fields. In the field of business strategy, few theoretical frameworks can stand the test of time like Porter's Five Forces Model and still maintain its importance and practicality.

1. What is Porter’s Five Forces Model?

This model was created by the famous economist and strategist Michael E. Porter in the early 1980s. It provides a more scientific thinking model and analysis tool for corporate managers to understand the industry's competitive situation and market structure and evaluate the industry's overall profit potential. It emphasizes the importance of industry structure to strategic choices and is a commonly used analysis framework in corporate strategic planning, market research and investment decisions.

The model helps users identify the five key forces that influence industry competition and corporate strategic choices, and gain insights into strategic positioning, market entry, and long-term profit prospects.

1. Rivalry Among Existing Competitors:

• The number, size, market share distribution and intensity of competitive strategies of existing companies in the industry.
• Factors that influence consumer choices include the degree of differentiation of products or services, brand loyalty, and switching costs.
• Increased competition due to cost structure, overcapacity, slow growth or market saturation.
• Frequent use of competitive means such as price wars, advertising wars, R&D investment, and new product launches.

2. Threat of New Entrants:

• The height of industry barriers, such as economies of scale, capital requirements, technology patents, regulatory approvals, customer loyalty, etc.
• New entrants can bring new production capacity, technology, and business models, posing challenges to existing companies.
• Entry costs (initial investment, learning curve costs) versus expected returns.

3. Threat of Substitute Products or Services:

• The extent to which substitute products or services exist that satisfy the same or similar wants.
• The price-performance ratio of substitutes and the difficulty for consumers to switch to substitutes.
• The possibility of increased substitution threat due to factors such as technological advancement and changes in consumer preferences.

4. Bargaining Power of Suppliers:

• Supplier concentration, uniqueness and scarcity of raw materials or key components.
• Supplier switching costs refer to the time, money and other resources required for a company to change suppliers.
• Is it possible for suppliers to integrate forward and enter the downstream market directly to compete with incumbent companies?

5. Bargaining Power of Buyers:

• Concentration of buyers, volume of purchases, and price sensitivity.
• The degree of product standardization and differentiation affects buyers' replacement choices.
• Whether the buyer has the potential to integrate backwards and produce or provide similar products and services on its own.
• Buyers’ ability to obtain information and their understanding of market dynamics and price comparisons.

By assessing the impact of these five forces on the business environment, managers can gain insight into the industry's profit potential, predict market trends, identify key risks, and develop effective competitive strategies based on this, such as cost leadership, differentiation, focusing on specific market segments, establishing supply chain partnerships, and innovating to address the threat of substitutes.

2. How can Porter’s Five Forces Model be applied in marketing work?

For marketing practitioners, they can give full play to the strategic guidance and tactical assistance of Porter's Five Forces Model. From the overall perspective of the industry's competitive landscape, they can formulate and adjust specific marketing strategies such as market entry, product development, pricing, distribution, and promotion to achieve marketing goals such as increasing market share, building brands, and managing customer relationships.

Porter's Five Forces Model has a wide range of application value in marketing work. The following will show you how to apply it to various aspects of marketing, and use a fictitious sports shoe brand A as an example to explain in detail the marketing process of its entry into the Chinese market.

Below, I will take sports shoe brand A as an example to explain in detail how Porter's Five Forces Model is specifically applied to the six key links of marketing.

1. Market positioning and segmentation

Analysis of existing competitors:

Before entering the Chinese market, Brand A first needs to analyze the brand positioning, product features, pricing strategies, market share and marketing activities of major competitors such as Nike, Adidas, Anta, Li Ning, etc.

For example, Nike promotes the sports spirit of "Just Do It", and its products focus on technological innovation and excellent performance; Adidas emphasizes the concept of "Impossible is Nothing", taking into account both sports performance and fashion trends; Anta and Li Ning rely on their local advantages, emphasizing cost-effectiveness and national pride.

Through comparative analysis, Brand A can choose to focus on market segments that have not yet been fully satisfied, such as professional running enthusiasts, consumers with a strong sense of environmental protection, or young people who pursue personalized design, so as to determine a unique market positioning and avoid head-on competition with mainstream brands.

Threat of potential entrants:

Brand A should pay attention to changes in market entry barriers, such as policies and regulations, changes in consumer behavior, and applications of emerging technologies.

For example, as online shopping becomes more popular, emerging brands with a DTC model may be able to enter the market at a lower cost and faster speed.

Brand A should build competitive barriers and resist the impact of potential competitors by strengthening brand image building (such as creating a unique brand story, carrying out social responsibility projects, etc.), deepening emotional connections with consumers (such as holding offline experience activities, establishing membership communities, etc.), and launching innovative services (such as customized design, smart wearable integration, etc.).

2. Product Strategy

Threat of substitutes:

There are many substitutes in the sports shoe market, such as sports casual shoes, sports sandals, outdoor hiking shoes, etc. Brand A needs to pay close attention to the market performance of these substitutes, study how they meet consumer needs (such as comfort, versatility, fashion elements, etc.), and optimize its own product characteristics accordingly.

For example, if Brand A finds that consumers are increasingly favoring lightweight, breathable, and easy-to-wear sports casual shoes, it can develop sports shoes with similar features while emphasizing the advantages of its professional sports performance to reduce consumers' tendency to turn to substitutes.

Supplier Bargaining Power:

Brand A should evaluate the impact of suppliers on product quality, cost and supply stability

For example, if a key material supplier has exclusive patented technology and there is no equivalent substitute on the market, the supplier has strong bargaining power. At this time, Brand A can consider signing a long-term cooperation agreement, sharing R&D results, and jointly developing new materials to ensure the stability of the supply chain, while reducing procurement costs through large-scale procurement or introducing competitive suppliers to support the implementation of product strategies.

3. Pricing strategy

nBuyer bargaining power:

It is necessary to understand the purchasing power, price sensitivity and information acquisition ability of target consumers (such as teenagers, working people, professional athletes, etc.), and through market research and data analysis, formulate a pricing strategy that can reflect the value of the product and be accepted by consumers.

For example, for price-sensitive young consumers, Brand A can launch strategies such as student discounts and holiday promotions. For professional users who pursue quality, Brand A can provide VIP services and limited edition products to enhance value perception and reduce price pressure.

Analysis of existing competitors:

According to the pricing strategies of competitors, Brand A can choose to follow the mainstream price range in the market and maintain market consistency to reduce consumers' psychological barriers to price comparison; or adopt a premium pricing strategy based on the differentiated advantages of its own products, emphasizing the unique value of the products and attracting consumers who are willing to pay higher prices for quality, innovation or brand.

4. Distribution and channel management

Supplier Bargaining Power:

In distribution and channel management, "suppliers" here mainly refer to partners such as distributors and e-commerce platforms. Brand A needs to evaluate the bargaining power of these partners and choose the channel combination that can most effectively promote and sell products, such as simultaneous online and offline development, in-depth cooperation with large e-commerce platforms, and opening self-operated stores. At the same time, negotiate for favorable cooperation terms, such as lower deductions, more marketing resource support, etc., to control channel costs and improve marketing efficiency.

Threat of potential entrants:

With the rise of emerging sales channels such as social e-commerce (such as WeChat Mini Program Mall, Xiaohongshu Mall) and live streaming, Brand A should adjust its marketing strategy in a timely manner and use these new channels to expand its market coverage, especially to reach young and active online shopping users.

For example, Brand A can cooperate with well-known anchors to carry out live streaming sales, using the influence of KOLs to quickly increase brand awareness and product sales, and prevent new entrants from seizing market share through novel channels.

5. Promotion and advertising strategies

Analysis of existing competitors:

Study the advertising (e.g., TV, outdoor, and social media advertising), promotional activities (e.g., end-of-season discounts, buy one get one free), and public relations strategies (e.g., sponsorship of sports events, signing celebrity endorsements) of competitors such as Nike and Adidas to understand their successes and shortcomings and develop corresponding counterattacks or differentiated marketing initiatives.

For example, if Brand A’s competitors rely mainly on sports star endorsements, it can consider cooperating with sports-related charity projects to create a more approachable and socially responsible brand image in order to stand out in advertising.

Bargaining power of buyers:

Design targeted promotional activities based on the bargaining psychology of different consumer groups.

For example, Brand A can target price-sensitive mass consumers by launching member-exclusive offers, limited-time discounts, and points redemption, etc., to enhance consumer loyalty and reduce their price sensitivity. For high-end users who pursue unique experiences, it can provide customized product experiences, exclusive shopping consultant services, etc., to offset their focus on price by enhancing service value.

6. Market trend forecast and response

Overall Five Forces Analysis:

Brand A should regularly conduct a comprehensive analysis of the five forces model to monitor changes in the industry environment, such as shifts in consumer preferences (e.g., from pursuing famous brands to pursuing personalization and environmental protection), the impact of new technologies (e.g., the impact of 3D printing and smart wearable technology on the design and function of sports shoes), and policy adjustments (e.g., changes in trade policies and environmental regulations), and adjust marketing strategies in advance to adapt to market changes.

For example, if it is predicted that consumers’ attention to environmentally friendly materials will continue to increase, Brand A should increase its investment in green material research and development, environmentally friendly packaging, and carbon footprint transparency, and integrate them into product strategy and marketing communications to adapt to market trends and shape a green brand image.

Conclusion

To sum up, by applying Porter's Five Forces Model, brands can accurately locate target markets from the overall perspective of the industry's competitive landscape, formulate competitive product strategies, pricing strategies, distribution and channel strategies, promotion and advertising strategies, and proactively predict and respond to changes in market trends, thereby effectively increasing market share, strengthening brand building, optimizing customer relationship management, and achieving marketing goals.

Author: Chen Hao