How do you identify and overcome the barriers to entry in a potential market?

1 Porter's five forces model

Porter's five forces model is a framework that helps you analyze the competitive intensity and attractiveness of a market. It consists of five forces: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the rivalry among existing competitors. By assessing each force, you can identify the sources and strength of the barriers to entry in a market and how they affect your client's position and profitability.

2 Threat of new entrants

The threat of new entrants refers to the likelihood and ease of new competitors entering a market. The higher the threat, the lower the barriers to entry and the more competitive the market. Some factors that increase the threat of new entrants are low capital requirements, low switching costs, high customer demand, low differentiation, and weak legal protection. Some factors that decrease the threat of new entrants are high capital requirements, high switching costs, low customer demand, high differentiation, and strong legal protection. To overcome this barrier, you can advise your client to invest in innovation, branding, customer loyalty, quality, and patents.

3 Bargaining power of suppliers

The bargaining power of suppliers refers to the ability of suppliers to influence the price, quality, and availability of the inputs that your client needs to produce its products or services. The higher the bargaining power of suppliers, the higher the barriers to entry and the lower the profitability of your client. Some factors that increase the bargaining power of suppliers are high concentration, low substitutability, high switching costs, high differentiation, and low dependence on your client. Some factors that decrease the bargaining power of suppliers are low concentration, high substitutability, low switching costs, low differentiation, and high dependence on your client. To overcome this barrier, you can advise your client to diversify its sources, negotiate better terms, integrate vertically, or develop its own inputs.

4 Bargaining power of buyers

The bargaining power of buyers refers to the ability of buyers to influence the price, quality, and features of the products or services that your client offers. The higher the bargaining power of buyers, the higher the barriers to entry and the lower the profitability of your client. Some factors that increase the bargaining power of buyers are high concentration, low switching costs, high price sensitivity, low differentiation, and high availability of information. Some factors that decrease the bargaining power of buyers are low concentration, high switching costs, low price sensitivity, high differentiation, and low availability of information. To overcome this barrier, you can advise your client to segment its market, customize its offerings, build relationships, increase value, and differentiate its products or services.

5 Threat of substitutes

The threat of substitutes refers to the extent to which alternative products or services can satisfy the same needs or wants as your client's products or services. The higher the threat of substitutes, the higher the barriers to entry and the lower the profitability of your client. Some factors that increase the threat of substitutes are low switching costs, high price-performance ratio, high availability, and high compatibility. Some factors that decrease the threat of substitutes are high switching costs, low price-performance ratio, low availability, and low compatibility. To overcome this barrier, you can advise your client to innovate, diversify, improve quality, and create loyalty.

6 Rivalry among existing competitors

The rivalry among existing competitors refers to the intensity and frequency of competitive actions and reactions among the firms that already operate in a market. The higher the rivalry, the higher the barriers to entry and the lower the profitability of your client. Some factors that increase the rivalry are high number of competitors, low growth rate, high exit barriers, low differentiation, and high fixed costs. Some factors that decrease the rivalry are low number of competitors, high growth rate, low exit barriers, high differentiation, and low fixed costs. To overcome this barrier, you can advise your client to focus on its core competencies, avoid price wars, exploit niches, and form alliances.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?