In 1979, Dr. Michael E. Porter made a debut in the Harvard Business Review, where he published an article that shook the marketing industry and its approach to strategy and risk. Subsequently, countless articles were published, strengthening its application in marketing risk management and making it one of the modern pillars of marketing. The framework consists of five forces:
Porter's Five Forces - Marketing Risk Management
Rivalry amongst existing competitors: The centerpiece of the framework consists of the current competition and risks that can change or affect the current landscape. A competitive landscape can decrease profitability (Porter, 2008), whereas the opposite is true for a small number of rivals. Additionally, it can change the way the subsequent component affects an entity.
Bargaining power of buyers: This component consists of the customer/client base and their ability to, through demand, decrease prices and increase quality expectations, causing tension amongst competitors (Porter, 2008).
Bargaining power of suppliers: This component consists of suppliers’ ability to drive costs. The lack of resources or oversaturation of resources can have an effect. For example, the EV (electronic vehicle) market has gained significant traction. Vehicle manufacturers are tasked with finding battery manufacturers that can produce batteries at a certain volume and quality, placing power in the bargaining capability of battery manufacturers.
The threat of new entrants: This component consists of the threat of new players in the field, often assessed through barriers to entry. For example, if the cost is too high to enter, if the industry or segment is saturated, if the technology is too far advanced, etc.
Threat of substitute products or services: This component includes risk towards the current offering, such as disruptive technologies that can enhance how a product or service is delivered. Think about Netflix’s effect on Blockbuster or digital photography and how it changed the dynamics of companies like Kodak and Polaroid. Keep in mind that the substitute may not be a similar product or service. For example, video conferencing can be a threat/substitute for travel (Porter, 2008).
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review (Vol. 86, Issue 1, pp. 78–137). Harvard Business Review.
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