Similar to the 4Ps of Marketing, anyone who has taken an introductory business course has probably heard about Porter’s 5 Forces. Porter’s 5 Forces is a model companies use to identify the competitiveness of a particular industry. And just like the Ps in the Marketing Mix, you can revisit the five forces any time your company grows or the product suite changes.
This article will cover the five forces, share an example, and explore why those in the UC industry should try out this model.
What are Porter’s 5 Forces?
As mentioned above, Porter’s 5 Forces cover five competitive forces that shape every industry. The concept was developed in 1979 by Michael Porter to assess and evaluate a business’s competitive strength and position in its specific sector.
Not only does the framework provide peace of mind regarding competition, but it also considers your suppliers and potential substitutions from end users.
Porter’s 5 Forces are:
- Threat of New Entrants
- Threat of Substitution
- Bargaining Power of Suppliers
- Bargaining Power of Buyers
- Rivalry of Existing Competition
When you understand the industry you are entering or actively working in, you can better position yourself, your brand, and your product amongst competitors. Each force has benefits to help you find your competitive advantage. Let’s explore them!
Threat of New Entrants
A new entrant is a company that produces a competing product for the first time. How likely would it be for a new company to enter the market? The threat would be low if you are in a specific industry requiring much knowledge and research. However, the threat would be high if the product is simple, like developing dog toys.
The threat of new entrants in the UC market is moderate. We measure the threat as moderate because new companies must provide innovative solutions aligned with industry standards. However, they can easily partner with established players that are the original software manufacturers of the products.
As a UC Reseller, think of how easy it is to enter the industry. It requires a niche expertise; however, not manufacturing your products is one significant benefit to reselling. By partnering with an experienced provider, like Bicom Systems, resellers avoid starting their business at square one. They also have the tools to meet the demands of many different customers across different industries.
For example, one customer may be a pizza company that needs their delivery staff available on mobile. Another customer may be in the hospitality industry and require minimal features but multiple extensions. Partnering with an experienced provider means you have all the tools to ensure you meet the needs of your customers.
Not to mention, trusted providers will support their resellers by providing branded marketing material, training courses, and case studies. Stay with a provider who is constantly updating their solutions and staying innovative.
Threat of Substitutes
Regarding unified communications, we can consider the threat of substitutes in two ways. One is the likelihood that your customers will switch away from your product. Or two, that they move away from UC services entirely.
The threat of substitutes is low when considering option two because no alternative services can substitute UC. On the other hand, with option one and your customers, the threat of substitutes is moderate.
Customers have the ability to switch to a new provider, but switching providers is not like changing laundry detergent. It takes time to transfer clients from one hosted solution to another. Many factors come into play when considering switching, such as price, features, customer service, etc.
To ensure your customers do not search for substitutes, look at our Bicom Systems Tips!
- Be Transparent
- Treat Your Customers like Partners
- Ensure Products are Updated Regularly
- Keep Your Providers Up to Date with Industry Standards
For example, SMS is becoming a common feature. Our Partners expressed the real risk of losing business, so we partnered with Telnyx and added it! Don’t be afraid to express your wants and needs to your provider.
Bargaining Power of Suppliers
The bargaining power of suppliers depends on how much power and control a company’s supplier has over price and quality. Could the supplier raise their prices? Or reduce the quality of their services? Another factor to consider when determining this force is the number of suppliers a company can pick. The fewer suppliers there are, the more power they hold. Businesses are better positioned when there are many suppliers to choose from.
When we consider the bargaining power of suppliers, think of factors like:
- Switching Costs
- Availability of Substitutes
- Uniqueness or Differences
In the technology industry, there is an unspoken rule that players must stay up to date with industry standards. On top of that, in the UC industry, very few vendors have their own cloud hosting. As a result of these two points, and keeping in mind UC Resellers are considering software manufacturers as suppliers, the bargaining power of suppliers is low.
As we mentioned before, do not be afraid to make product feature requests to your provider. If your customer ‘wishes’ they had a specific feature, chances are other customers will benefit from it. Thankfully at Bicom Systems, our partners can purchase or rent the licenses and sell them to whoever, wherever, for whatever the price. The extremely clear channel strategy gives power to the resellers so they can control the bargaining power of suppliers to their customers.
Ensure you partner with well-established providers in the industry. When your provider is credible, you can trust they will not make dramatic changes with their support, prices, or quality of solutions.
Bargaining Power of Buyers
On the other end of suppliers, we have buyers. This force allows customers to add pressure on providers and demand better prices and quality of products. The number of competitors in an industry that offers identical products increases the buyer’s bargaining power. It is best practice to consider the bargaining power of buyers to be high when there are many options.
As distributors in the UC industry, there are dozens of vendors that sell identical products at comparable prices. Since buyers have several options to choose from similar services, the bargaining power in the UC market is high. Customers are now searching for the best price, unique features, and ease of switching to another vendor.
A few strategies to consider to help you deliver unique value to your customers are:
- Incentive Programs
- Quarterly Sales and Discounts
- Top Notch Customer Service
- Reliable Support
When you are connecting with customers, personalize your sales pitch. Understand their needs and showcase how your company can meet them and solve their problems. Everyone has the ‘best’ solutions, but as a Reseller, it is your responsibility to show how your solutions will help them.
Last, we examine competitive rivalry in the marketplace. This force is determined by the number and size of existing competitors in the industry. Think of it as the pressure market players put on each other.
Rivalry is considered high when many competitors are equal in size, power, and price. We determine competitive rivalry is high in the UC industry because competitors are not much different.
It is high because various industries introduce new technology and trends daily, directly increasing competition. Not to mention the similarities between major vendors in technology. As a US Reseller, protect yourself by having a competitive advantage. Position yourself as favorable, or the superior business, and you will stand out against competitors. Showcase your highly knowledgeable sales staff, unbeatable prices, or early access to new technology.
To help stand out among competitors, is to approach different industries. For example, did you know VoIP can be extremely beneficial for schools and universities? Showcase the benefits of selling to the academic sector.
Now that you learned the basics of the model, you understand how vital identifying competitive forces are for long-term planning. Working through the five points is useful for examining your current competitive position and ability to move into other areas. The best part is that the forces can be revisited at any time, just like the Marketing Mix.