While we’re not proponents of obsessing over competitors, it’s important to understand the options your prospective customers have in front of them.
Oftentimes, your would-be customer’s description of the competitive alternatives is not what you’d expect.
There’s a classic business-school framework developed by Michael Porter, called Porter’s Five Forces. It can help you understand all the competitive forces your business faces — so you can better differentiate your offering.
Here are the five “forces” Porter includes:
1. Current direct competitors
These are probably the companies you think about most often. Your buyers mention them during the sales process. Sometimes you win business that used to be theirs; other times, you lose customers to them. They are likely very familiar to you; they are your rivals.
Your vendors could choose to sell directly to your customers — thereby cutting you out of the loop. This is a particularly acute issue for retailers, which is why contracts often explicitly forbid manufacturers from selling directly to customers or undercutting retailers on price.
Yep, that’s right! In some industries, the customers could simply do the work themselves. This is particularly true of service businesses, from flooring installation to haircutting.
Indeed, every time you cook at home, you’re technically competing with restaurants.
4. New entrants
These competitors are always the most difficult to identify because they creep up from seemingly nowhere. You might hear about them once or twice and then, suddenly!, they appear to be everywhere.
A classic example of a substitute for an automobile is a bicycle. Ultimately, what the customer is buying is mobility — something to help them get from Point A to Point B.