Hello and welcome to this session on Marketing where we will talk about understanding the environment

you are marketing your product in, as well as the compe tition that comes along the way. Let us talk about
the major beverage brands that we have. You think it is easy for a company like Coca Cola to stand up
there just with Coke under its name? Certainly not. In this fierce strife to be the market leader, brands like
the Coca Cola company have constantly come up with beverages targeted at a particular segment of the
market. The same way Cadbury has a range of its chocolates unlike the conventional chocolate slab it
started from. It has variants like Fruit & Nut, Caramel, dark chocolate, Orange peel and many more, each
aimed at a different mood or a different need.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

So, get yourself ready to learn about the fierce competition in the market that exists. In an ever evolving
global economy, the product & solution space across verticals is becoming increasingly competitive.
As new businesses try to set up and grow based on differentiators solving a particular consumer challenge,
there are so many competitors sprouting up left right & center. As a marketer, you need to understand

how the Competition in your space is going to affect your marketing activities. For the same it is very
important to know the power of your environment and your competition, and to look at it from a
company’s standpoint. Let’s talk about a perceptual map of how to think of competition with a simple
example.

Imagine you want to become the next big coffee brand in India. There are already many chains of
companies like Starbucks and Cafe Coffee Day who already have their own coffee. Then there are several
brands such as Nescafe & Bru who sell coffee across India. Coffee generally has two elements of
differentiation, the aroma & the flavour.

To create a new type of coffee, that differentiates it from the rest, you can plot all the current coffee
brands in a graph, where the X axis denotes the flavour moving from mild to strong & the Y axis denotes
the aroma, moving upwards from mild to strong. Then you essentially have 4 quadrants to map your
competitors into. Say there are 4 players Nescafe, Bru, Illy & Girnar that you want to map across 4
quadrants as shown in the diagram. You find all of these 4 players fall in quadrants 1, 2, 4. Hence there is
no major coffee production that has mild flavour but strong aroma, which is our 3rd quadrant.

From this simple exercise, let’s now move to one of the most popular frameworks that are used to
understand the environment and thus competitiveness of a particular product or solution, Porter’s 5
Forces Model.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

According to this model, industry attractiveness is determined by Five forces in that industry, and these
forces typically interact with each other. The five forces are –

● Threat of entry

● Buyer power

● Supplier power

● Threat of substitutes

● Competitive rivalry

The more forces that are favourable to the entrepreneur, the more attractive that industry is. Now, let’s
look at them one by one.

Threat of Entry New entrants to an industry bring new capacity and a desire to gain market share that puts
pressure on Prices, costs, and the rate of investment necessary to compete.

Think about the realty sector. A few years ago, there were just two major players, 99acres and Magicbricks
catering to online aggregation of properties being rented/leased or sold. But suddenly many other players
entered the foray such as Housing.com, nobroker.in and many like them. The threat of entry of new

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

entrants puts a cap on the profit potential of an industry, as more and more player s come in to take a slice
of the pie.

Take the Samsung Vs Apple example in the Smartphone segment. Samsung with its introduction of the
Galaxy Series was a treat to Apple’s market share in the premium buyer segment. An effect of this can be
seen in Apple’s new launch in 2016 of iphone 5se which is priced at 60% of the iphone 6 Series.

However, expecting no competition to enter the domain is also unrealistic, but knowing your competitive
scenario at the time of your entry into market is critical.

The threat of entry in an industry depends on the height of entry barriers that are present and on the
reaction entrants can expect from incumbents. Like, if the online realty players have a great offline
network as well, then it is a barrier that the others cannot easily replicate or match.

While assessing for your company, the question you need to ask is – Whether it is easy or difficult to enter
this industry?

If you are planning to launch and build a sustainable product then it is better to have a high barrier to entry
to begin with.

People want what’s best for them, so companies strive to change and adapt to the needs of the customers.
We heard about how new entrants like housing.com & nobroker.in in the realty sector put pressure on
major players like 99acres and Magicbricks. While we move on, we talk about the other 4 forces of the
Porter’s 5 forces model using industry examples.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

Next force in the model is Buyer’s power. Powerful customers can capture more value by forcing down
prices, demanding better quality or more service (thereby Driving up costs), and generally playing sellers
off against one another.

Let us take the example of the power industry. Most of the coal which is produced in India is purchased by
the thermal power industry. Thermal power plants are major buyers of coal. So, in India due to limited
number of large thermal power plants, they are very powerful buyers and if the domestic mining
companies increase the price of coal to a high level, power plants will import coal from outside.

Walmart is also another great example of buyer power. Walmart is extremely powerful as a buyer. It has
Enormous reach and reaches thousands of end users. It also buys in large quantities and Controls how a
customer accesses the brands and products that it stocks. This means that Walmart can Dictate prices,
delivery times and Product quality from its suppliers. Suppliers cater to this pressure by basing their
operations close to Walmart headquarters and allowing easy access to the company’s purchasing
departments to test products and negotiate terms.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

Large-volume buyers are particularly powerful in industries with high fixed costs, such as
telecommunications equipment, offshore drilling, and bulk chemicals. The question you have to ask is - Do
your buyers have the power to set terms and conditions?

Number three is the supplier’s power. So, the business that you are in — how easy or difficult is it for your
suppliers to drive up prices? Again, in the case of travel portals, say the suppliers of airline tickets are
limited due to limited number of companies but due to high competition amongst themselves they cannot,
they choose not to adopt of portals. On the other end of it, say a company or organisation of Indian
Railways, for example. Now Indian Railways is basically a monopoly. It can actually dictate terms with travel
portals and end up pushing for much lower commission rates.

Threat of substitute is something that also needs to be analysed within the Industry. A substitute performs
the same or a similar function as an industry’s product by a different means. Substitutes are always
present, but they are easy to overlook because they may appear to be very different from the industry’s
product.

Let’s take the example of Travel agents. Whether online or offline, they were threatened when airlines
themselves became the substitute of travel agents. So, the question here should be – Is it easy or difficult
for your product to be substituted?

For any company, it is preferable to have less threat of substitutes. It is very important to define your
industry narrowly because it will clearly help you focus as to who your principal competitors are which in
turn will help you in assessing the competitive rivalry.
© Copyright 2015-2016. U Education Management Pvt. Ltd. All rights reserved
© Copyright. UpGrad Education Pvt. Ltd. All rights reserved
Number five is competitive rivalry. Take the example of social networking sites. Facebook commands a
loyal user base across several user demographics and geographies.

However, competition from Google+ and Twitter can cause a reduction in the average time spent by active
users on the FB platform, as these platforms offer unique sets of features. Further, a number of social
networks are cropping up that target a niche user base. For example, Snapchat appeals to a younger
audience and is more popular among females. We expect this trend to persist and hence Facebook could
see competition intensifying within different user demographics.

Question you need to ask yourself is your competitor rivalry intense?

As a marketer you would prefer less competition, but reality is different. Hence, based on all five forces
you have to carefully assess your industry and find just how attractive or unattractive it is. Analysing
Porter’s 5 forces for your business, as a Marketer can give you deep insights into which types of marketing
communication, offers discounts, tonality and emotions with your target customer bases would work best.

So the first one is the threat of new entry, so how easy or difficult is it for any competition to basically
enter an industry and increase the population that's already existing as well as probably reduce margins for
your business. So for example, take the example of an online travel portal. It probably does not have a lot
of high entry barriers. That's the reason why you see a lot of them in the industry today making it hard for
any single one to end up dominating the market. Also one ends up doing is that it ends up reducing

© Copyright 2015-2016. U Education Management Pvt. Ltd. All rights reserved

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved
margins for the different the companies that are actually operating the s pace because each of them wants
to offer more discounts to acquire users.

Number two is the second force in this model is the power that is held by the buyers in the industry. So
what I mean by that is the customers, who are actually transacting, how many of them are able to be
forced on prices or demand better service quality or a better product quality, etc. thereby driving up costs,
and generally what they do is that they also end up making these companies go against one another and
compete against one another even more strongly.

So again, take for example of an online travel company. The customers typically end up having a lot of high
bargaining power because they have many options to choose from just given the fact that, because the
industry is much easy to enter, there are different companies who are actually coming up in the space and
hence the users actually have the choice of switching across. So the cost of switching between companies
is lower and hence the power in the end is high.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

Number three is the supplier’s power. So the business that you are in — how easy or difficult is it for your
suppliers to drive up prices? Again, in the case of travel portals, say the suppliers of airline tickets are
limited due to limited number of companies but due to high competition amongst themselves they cannot,
they choose not to adopt [?] of portals. On the other end of it, say a company or organisation of Indian
Railways, for example. Now Indian Railways is basically a monopoly. It can actually dictate terms with
travel portals and end up pushing for much lower commission rates.

The fourth example is — the fourth power is — actually the threat of substitutes. So substitute is basically
very simple, it is something that a company or it’s a product that performs the same similar function as
whatever you are building. So one example of this would be how travel portals used to actually sell hotels
at one time, so you can actually buy rental accommodation through a travel portal and end up staying at a
hotel. But, over time, there was a company that came in like Airbnb, and Airbnb completely changed that
market in a way. So they built a product where payer to payer accommodation started competing with
hotels. So, you would obviously want to prefer being in an industry where there is less then substitute but
at the same time you need to be cognizant that substitutes can come from anywhere, and certainly you
need to modify a product to see that.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

Number five is competitive rivalry. So this is basically used to measure how intense is the competition
currently in the industry. This is influenced by, say, the number of companies in the market, or their
capabilities and the kind of products that they are building, which ends up determining how competitive is
the is the industry as a whole. While you should keep looking for other substitutes you should also be
cognisant of the competition. For example, if a person who's actually used to booking online travel hotels,
there are hotels online web portals, he could easily switch to products like Vista Rooms or FabHotels. So, I
think that's one of the examples.

Similarly, Facebook actually commands a huge loyal user base across many geographies and demographies,
but it also faces competition from Google Plus and Twitter, and that ended up causing a reduction in the
average time spent on the Facebook platform, because alternate platforms also offered very unique set of
features over Facebook. If you look at it now, a number of social networks are popping up that target a
very niche user base. So I think Snapchat is one perfect example of that. They basically targeted 18-25 year
olds and it's very popular amongst women. So we expect these kinds of trends will continue to persist and
FB obviously would see competition coming up from these kinds of users or these kinds of demographies.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

In traditional slow growth industries like, say, the pharmaceutical sector, competitive rivalry would be
really high again. And needless to say, in such sectors that heavy brand spends are needed for the
companies to become market leaders. While talking about competitive rivalry one part is that you may not
want to overlook relevant substitutes. For example, even bullet trains would be a competitor to the airline
industry. So the question that you need to keep asking yourself is that ‘Is your competitive rivalry a
competitor rivalry very intense?’ You may certainly prefer to work with this competition but at the same
time you need to be cognisant that: what is the competition doing? And how can you improve than what
they're doing?

To recap your learning’s in this session, you understood the importance of analysing the competitive
environment surrounding your product to survive in this ever- changing environment. Through the
example of entering into the coffee market, you saw how differentiating the product along the 2 elements
of aroma and flavour enabled the brand to create a niche for itself.

You were also introduced to the Porter’s 5 forces to evaluate the industry competitiveness while entering
the same. Within the 5 forces, first, you learned about the threat of entry which restrains the profits and
market share of existing firms.

As an example, you saw housing.com and Nobroker.in cutting down the profits of the incumbent firms in
the realty sector. Further examples of Amazon.in and Samsung showed you how offering range of products

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

and targeting a variety of consumers can put pressure on the barriers of entry thus making it difficult for
other firms to enter.

Next, you looked at the buyer’s and seller’s power as a critical factor in driving down the prices or
increasing the costs by demanding better services. As an example, you saw how the power industry being
the sole buyer of coal exerts pressure on the domestic coal producers by threatening to import coal from
outside.

Similarly, the example of Walmart demonstrated that having an enormous reach allowed them to dictate
prices and demand better quality products from its suppliers. I hope from this you realized why having a
weak buyer power is essential for a firm to enter the industry.

Next, you looked at why ignoring the potential substitutes for your product can be a dangerous
proposition. Taking the example of Travel Agents, you saw how their existence was threatened when
airlines themselves started a booking portal.

Finally, you saw how making sense of the competition around your product can be critical to your
company’s success. Like for example, Facebook presence in social-networking was hardly challenged
before Google+ and micro-blogging sites like Twitter came along. This certainly affected FB engagement
with their users. Therefore, you should realize as a marketer you should prefer an industry having less
competition.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

Disclaimer: All content and material on the UpGrad website is copyrighted material, either belonging to
UpGrad or its bonafide contributors and is purely for the dissemination of education. You are permitted to
access print and download extracts from this site purely for your own education only and on the following
basis:

1. You can download this document from the website for self-use only.
2. Any copies of this document, in part or full, saved to disc or to any other storage medium may only
be used for subsequent, self-viewing purposes or to print an individual extract or copy for non-commercial
personal use only.
3. Any further dissemination, distribution, reproduction, copying of the content of the document herein
or the uploading thereof on other websites or use of content for any other commercial/unauthorized
purposes in any way which could infringe the intellectual property rights of UpGrad or its contributors, is
strictly prohibited.
4. No graphics, images or photographs from any accompanying text in this document will be used
separately for unauthorised purposes.
5. No material in this document will be modified, adapted or altered in any way.
6. No part of this document or UpGrad content may be reproduced or stored in any other web site or
included
in any public or private electronic retrieval system or service without UpGrad’s prior written permission.
7. Any rights not expressly granted in these terms are reserved.

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved