The 1980s were the years of the ‘Cola Wars’ between two soda giants—Coca-Cola and PepsiCo. Coke, in a bid to win back some of its loyal customer base, decided to release a ‘New Coke’—a sweeter version to compete with Pepsi. However, this tactic failed and it had to release an apology as well as reinstate the Coke Classic.
Throughout the years, there have been several brand rivalries anytime a new player has entered the market. Whether it’s McDonald’s and Burger King or Marvel and DC, new entrants in the market have a way of disrupting your business.
Let’s discover this threat of new entrants and what it means for your business.
Michael Porter’s Threat Of New Entrants
Harvard professor Michael Porter developed the Five Forces Model that defines five forces—threat of new entrants, buyer power, seller power, competitive rivalry and threat of substitutes. These five competitive forces affect the competition in an industry. It can impact your business’ profitability, market standing and customer loyalty.
The threat of new entrants, along with the other forces, can disrupt how you do business. It can either make you stronger or weaker. All this depends on how you study the market to build your business strategy. For instance, for differentiated products, the threat of entry is low when compared to similar products. Only hardcore lovers of Coke will choose it over Pepsi. For some, it won’t make much of a difference whether they’re drinking the former or latter.
As business owners, it’s important to build a product or service that’s not easy to replicate. If it is, you have to offer something in addition to it. The quality of product, cheaper or better prices and good customer service can help you counter the threat of new entry.
Another example of threat of new entrants is how startups disrupt the business landscape. They employ agencies for short-term work instead of building teams in-house. This saves them a lot of resources—monetary, office space and the cost of hiring new people. Whereas, large corporations spend substantially on building products or services in-house.
How To Leverage The Threat Of New Entry
Preparing for new brands in the industry can save you money and increase your profitability. For this, you may have to invest more in your branding efforts. Marketing channels like social media or paid marketing can grow your brand. Setting up distribution channels that aren’t easily accessible also deters the threat of new entry. Let’s find out what you can do to lower the threat of entry.
1. Competitive Distribution Channels
If your distribution channel isn’t easy to access you’ll likely have a low threat of entry. For instance, it may not be easy for a new brand to enter an established department store to sell its product. It’ll need some form of brand recall or market presence before it is stocked. This means that the level of threat isn’t high. It gives you an edge, making it easier for you to continue your streak. A good threat of new entrants example is if a new cereal brand wanted to cut in line. It’ll have to go past Kellogg’s!
2. Powerful Brand And Marketing Strategy
A powerful brand is one that has robust marketing strategies, a well-defined mission and valuable insight to offer. Brand is how your customers perceive you. What you stand for, your values and drive to make your mark. How you translate this brand purpose into real-world marketing efforts can make all the difference. The way you interact on social media, your marketing channels—whether paid or organic—and your ability to take customer feedback all play into how your brand sets you apart.
3. Unique Product Or Service
The most obvious way to lower the threat of new entrants is building something that’s one-of-a-kind. Not only should your product have the power to outdo competitors but it should also stand the test of time. Even if there are new entrants, your product or service should be able to sustain competition.
A business strategy needs to be built on quantitative and qualitative data. Once you get the insights you need on possible new entrants, you can prepare for it. The best way to do that is to build a network for information sharing. Harappa’s Expanding Networks course will teach you how to build a robust, meaningful and mutually-beneficial professional network. You’ll learn about different types of networkers and how they can help you in a crisis. When you need to learn about other brands, you can reach out to industry experts or experienced professionals. A network that can give you the information and opportunities you need will help you overcome challenges. Enroll today and start networking like a pro!
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