Porter's Five Forces - simplified !

This was originally formulated by Mr. Michael Porter, professor at Harward Business school in the late 1970s to analyse an industry based on five forces that influence an industry and its players. Porter's five forces have five forces or market elements that needs to be analysed to arrive at a successful business strategy. The derived business strategy can be implemented to achieve a clear and distinct position in the market and in the customers' minds. The outcome which also gives a clear picture of the current market situation which will help the organisation decide how they can use the market situation to their advantage or position themselves in the market where by increasing profitability and brand image.
To hear the original one from Mr. Porter himself, follow the below link :
https://www.youtube.com/watch?v=mYF2_FBCvXw

The below is my view of Porters's five forces and how they can be applied to analyse an industry and how well we can position our organisation.

MY VIEW OF APPLYING PORTER'S FIVE FORCES :

1. Competitors Rivalry
This gives insight into the rivalry that exists in the industry i.e. how competitive the players in the industry are and what are their strengths and weaknesses. It also answers the questions to how can a new entrant cope up with this competitive market and turn their business into a success model. A few of the questions that can help us draw a picture of competitors rivalry are as below :
- How competitive the industry in terms of margins and profitability ?
- How is the competitive intensity ?
- Who is the biggest player in the industry and what is the market share held by them ?
- What is the industry experience of each player in the industry and their strength ?
- What is the industry Growth in the near future ?
- Does it demand for capacity addition in large scale ?
- Brand value of competitors
- Is there a monopoly or hurdles put in place by big players to indirectly control small players' market share?
- Is it a high stakes industry where organisational structure requires highly skilled and efficient human resource ?

2. Threat of New Entrants
This gives insight into how easy it is to enter an industry or exit an industry and also how easy it is for a new entrant in the market to replace an experienced strong player in the industry. A few of the questions that can help us draw a picture or gain insight of this force are as below :
- How easy is it to enter the new market or the industry ?
- What is the economies of scale to be profitable ?
- How big and specialised capital investment needed for setup and distribution ?
- How brand conscious or brand loyal is the industry and its customers ?
- What is the increase in the inflow of supply with new entrants ?
- What are the legal complications for new entrants ?

3. Threat of Substitute Products
This gives insight into how the available substitutes for the original affects the latter's market share and sales. A few of the questions that can help us draw a picture or gain insight of this force are as below :
- How many products or service providers are available in the market catering to the same customer's need ?
- How loyal are the customers to brand ?
-  Can customer's need be satisfied by products from other industries serving the same purpose ?

- How easy is it for competitors to develop a new substitute or a clone ?

- What is the price and quality difference between the available substitutes ?

- How regulated is the market with respect to patent rights ?

- What is the switching cost for consumers ?

4. Bargaining Power of Consumers
This gives insight into whether the market favours the buyers or the sellers or a win win for both. This also explains the demand and supply quotient of the industry. A few of the questions that can help us draw a picture or gain insight of this force are as below :
-  What is the percentage of population dependent on the products supplied by the industry
-  What is the cost of switching between services or product to fulfil customer's need ?
-  What is the demand and supply, is there a surplus in supply or a shortage in supply to demand ?
-  Customer's price sensitivity, what is the elasticity of demand ?
-  What is the cost of backward integration for the customer ?
-  What is the frequency and volume of purchase ?
-  Are the products supplied by the industry come under luxury products or a necessity ?

5. Bargaining Power of Suppliers
This gives insight into whether the market favours the supplier or the organisation or a win win for both. This also provides insight into availability of capital goods and input costs. A few of the questions that can help us draw a picture or gain insight of this force are as below :
- How easily are the raw materials/capital goods available ?
- How many suppliers are available and how easy it is to find an alternative ?
- What is the possibility of backward integration  in order to negate the supplier in the process ?
- How easy is it to acquire skilled manpower in the respective field ?
- What is cost of switching between suppliers ?
- Are we to deal with government organisations in a industry involving consumption of natural resources ?
- What is your economies of scale ?
- What is the possibility of forward integration  by the supplier there by directly catering to the customers' needs ?

Once the five forces are analysed, a chart can be prepared in the below format to assess the opportunities and threats for our products/services in the industry. This will help us to define a robust business strategy to negate competition and make profits or to decide whether to enter a new industry or to exit a matured industry.

FORCES	OBERSVATIONS	OPPORTUNITIES	THREATS
FORCE - 1	Observation 1	How ?	How ?
	Observation 2
	Observation 3
FORCE - 2	Observation 1	How ?	How ?
	Observation 2
	Observation 3

BUSINESS MODELS

The below are a few examples of Business Models will explain the sales and purchase transactions that happen at various levels in a supply chain :

1. B2B (Business to Business)
2. B2C (Business to Consumer)
3. C2B (Consumer to Business)
4. C2C (Consumer to Consumer)
5. B2G (Business to Government)
6. G2B (Government to Business)
7. G2C (Government to Citizen)

1. BUSINESS to BUSINESS

This involves transaction between two business organisations and it will not involve the end customer. A good example will be procurement of raw material by a Manufacturer from the source/supplier. Another example in Retail supply chain will be purchase of Goods by the Wholesaler from the Manufacturer

2. BUSINESS to CONSUMER

This involves simple sales transactions from a Retailer to the end consumer/customer. With retailers shifting to E-Retailing, this form of business has increased multiple fold over the recent years. Some good examples will be FlipKart, Amazon, etc.

3. CONSUMER to BUSINESS

This is a new form of business which has come into existence majorly due to dotcom boom. It is also known as reverse auctioning where in a consumer can promote or advertise a service provider and be benefitted in money or other means for purchases made through his promotion or for this promotion. A simple example can be, a consumer writes or promotes a company in his Blog or Website and when another consumer uses the link to purchase goods from the service provided, the service provider will pay a promotion charge to the promoter.

4. CONSUMER to CONSUMER

EBAY is a very good example of consumer to consumer business model. This involved tow consumers , one selling a product or service and the other buying and paying for the product or service bought. The third party will be the online portal where the advertisement and the transaction happens. There is huge boom in the used goods market by the advent of such E-commerce sites benefitting both the buyer and the seller

5. BUSINESS to GOVERNMENT

This is a business model in which service providers and product manufacturing advertise or pitch their products/services to the government for present or future use. Private players in defence industry
is a very good example where in new technology and weaponries are presented for trial to the defence ministry and these players sell both product and services to the government upon signing the respective deal.

6. GOVERNMENT to BUSINESS

In this form of business is used in E-Governance wherein the government will have its official website which will act as a one stop access between the service providers and the government. The respective service provider will touch base with the respective government organisation to pitch their bid and finalise a deal to execute the projects.

7. GOVERNMENT to CITIZEN

This is usually a non-profit business model where in government will sell products to citizens at reduced or highly subsidised prices. This model is widely used by government of India to provide relief material and basic food supply to the needy and poor people.

6Ps OF RETAIL MARKETING

I attended my first off campus interview with an experience of 1 year. I was asked this question by the interviewer. I was baffled by the question WHAT ARE THE 6Ps of RETAIL !!
But the interviewer did not give a sarcastic laugh , like most interviewers do when the interviewee cuts a blank face. He instead explained me the 6Ps in brief and I thank him for that till date because I never had to learn it more than once in detail to remember it. I hope the below section will help you to understand what I have understood and learnt so far about the 6Ps of Retail

THE 6Ps of RETAIL MARKETING :

1. Product
2. Placement
3. Price
4. Promotion
5. People
6. Pixel

Each of these 6 Ps have equal importance in running a successful business and contributes to higher turnover when kept in check and analysed for improvisations on regular basis. Now lets discuss the same in detail :

1. PRODUCT :

A product is anything in a tangible or intangible form sold by an organisation to a client for profits. It is the assortment of product sold by an organisation that defines the purpose of the organisation and its existence in the market. Simple examples for intangible Products can be Insurance policies, BPO services and for tangible products will be Fruits, grocery items, clothing, etc.
All retailers will categorise the products based on Manufacturing, Procurement, sales and seasonality


CLASSIFICATION BASED ON MANUFACTURING (applicable for "in-house products")

1. Core or Flagship products
2. Basics

CLASSIFICATION BASED ON PROCUREMENT

1. Consignment
2. Concession
3. Regular
4. Deposit
5. Non-Trading
 
CLASSIFICATION BASED ON SALES

1. Top Selling
2. A Class , B Class and C Class products based on average sales in descending
3. Clearance goods

CLASSIFICATION BASED ON SEASONALITY

1. New Launch
2. Continued Products

We will discuss the above in detail when we discuss Product classification in upcoming chapters


2. PLACEMENT :

Placement can be subdivided into two types in case of a brick and mortar store :
- Visual Merchandising
- Store location

Visual Merchandising is the art of placement of your products at the right place in the shop floor, which will in turn act as silent salesmen to your customers improving both your sales and your customers' shopping experience. Visual Merchandising covers effective signage placement, cross merchandising, floor plan, gondola placements, aisle spacing, television placement, window displays, etc. We will discuss visual merchandising in detail in the future chapter on the same.

Store Location plays a vital role in attracting walk-ins i.e. number of customers visiting the store. A store placed in a mall's ground floor, a store well connected by public transport, a store with good parking space will attract more customers than a store failing in these criteria. Type of customers and customer needs in the store's catchment area should be studied before finalising the location. A very simple example can be, we cannot open a jewellery store in a high security risk area even if the area is well connected by public transport which will in turn cascade to higher walk-ins.


3. PRICING STRATEGY :

Pricing strategy is the art of pricing your products, yes its not just a job of fixing margins. It involved very niche expertise of understanding the customers, catchment and the product life cycle. For example a merchandiser while maintaining the price of a product would consider the below points:
- introductory products
- standard product or a regular buy product
- flagship products
- non selling products
- out of fashion
- clearance
- off sale season
- competitor's pricing
- budgeted margin percentage for the product category
Based on the above a merchandiser will decide whether he has to go with a promotion strategy or mark-up strategy or mark-down strategy or clearance pricing strategy.


4. PROMOTION : 

Promotion involves the various steps or measures you take to ensure your message reaches your customer. The message can be brand image , merchandise, loyalty program or your presence in the market. Promotion can be divided into two simple types :
- Above the line Promotion
- In-store Promotion
The first being promotions done outside the store premises like hoardings, flyers, etc and latter being in-store signage, window displays, visual merchandising, freebies, etc.
The purpose of every promotion will be to increase the following :
- Sales
- Customer Walk-in
- Customer Conversion
- Average Bill Value
- Brand Image

5. PEOPLE : 

People are the face of any organisation or retail brand. It is its people who define the success of an organisation. With retail still being people oriented industry unlike manufacturing, having well groomed and trained people will help your organisation achieve its goals and mission.
Therefore recruitment and training of employees is of high priority and importance in a retail environment. Skilled sales staff can enhance your sales and customer loyalty multiple folds. Ensuring high morale in team members and management staff will ensure very high return on investment for the higher management. Human resource department plays a very vital part in people management.


6. PIXEL : 

Pixel covers the technological front which are used for promoting our products.
We are in the age of Internet and people spend a lot of time online to connect and communicate with one another. This window provides us a huge opportunity to communicate and promote our products and brand image. Online marketing has a faster reach and with Facebook, Blogging gaining huge popularity they can be utilised as good marketing instruments to reach out to our customers.
Other ways of marketing can be done through bulk messaging to loyalty customers, emails and on our official website and pages.