ALL three of my sisters went into selling rellenong bangus and embotido when the pandemic hit and the lockdown stretched on for weeks into months. My eldest sister stopped selling when they started going back to work. My youngest sister, meanwhile, was in and out of it for some time. But my middle sister has persisted and even gone on to start a small sari-sari business. Initially, all my sisters sold the same products but later on, my middle sister went on to start her own business. The pandemic rattled most businesses big and small but for a few, just like my sister, it became an opportunity to start their own business.
I don’t think my sisters were in direct competition against each other. In fact, they shared the same recipe for making our mother’s rellenong bangus and embotido, and they even had the same supplier of bangus in the wet market. But given the current scenario and given the limited number of people who would want to buy their product, they were really competing for market share. What set my middle sister apart was her tenacity to pursue the business and the opportunity to maximize her customers and their connections. If you closely examine their business venture, you can glean several insights into understanding why knowing your competitors in business helps you develop new products and services.
And in understanding your business competitors, a helpful framework is Porter’s Five Forces.
As the name implies, this framework was introduced and published by Michael E. Porter in the Harvard Business Review in 1979. Since then, it has given organizations a tool in evaluating their competition and in innovating products and services as their competitive advantage. These identified forces also help organizations examine how threats and opportunities can be leveraged to their advantage. These forces include competitive rivalry, bargaining power of customers, threat of substitute products and services, bargaining power of suppliers, and the threat of new entrants.
COMPETITIVE RIVALRY. When you are the only one providing a product or service, as is the case now for my middle sister, this becomes easier for you to market your product and at the same time, you can also more or less dictate the price. Competition keeps the price in check because more competitors mean that customers can choose which one can offer the lowest price with the same product or service. And when competition is in an equal level playing field, each goes to advertising and price adjustments to ensure they keep their share of the market through brand loyalty. Knowing how many competitors are in the market helps you identify which segment of the market you can focus your products and services. In the case of my sister, the others just dropped off making it easier for her to sell her products.
BARGAINING POWER OF CUSTOMERS. Consumers vote for your products and services by buying them. How many people buy your product or service also affects the quality and price of your offering because the fewer the consumers, the more they can dictate the price. If your clientele is small and there are other businesses that can provide the same offerings, they will choose the cheapest with the best quality. It also depends on how much they are willing to buy at a given time—if they want more and they can get the quantity from other sellers, they can influence the asking price to their advantage. More so when there are only a few people who buy your product or service offerings, they are price sensitive, and there are many substitutes in the market. Luckily for my sister, her product offerings may have been limited but she later expanded her catalog by including other products.
THREAT OF SUBSTITUTE PRODUCTS OR SERVICES. This is especially threatening to products and services with a cheaper price tag. One of the reasons companies outsource service-related functions is to cut on cost—either through lower overhead costs or cheaper labor costs in another country. Knowing how you fare in terms of price, quality and turnaround time can spell the difference between you landing that contract or you looking for other clients.
You also need to consider emerging technologies and how your offerings can be rendered obsolete by new ways of working and automation. Chatbots, robotic process automation, and artificial intelligence have replaced repetitive manual work into automated workflows. If your business can be replaced with accurate automated processes, your business might be at risk of becoming irrelevant especially if the substitute is cheaper and more accurate.
BARGAINING POWER OF SUPPLIERS. When suppliers understand that you are heavily dependent on their raw materials because they are your only supplier, they can heavily influence prices to their advantage. And when that happens, your profit is diminished by how much more you spend on raw materials. But if you get multiple sources of raw materials for your product or service, you avoid succumbing to the pressures of suppliers because you have other alternatives. This becomes problematic when there are only a few suppliers or just a few control a scarce resource, or when there are only a handful of substitutes and replacing them would cost more. In the case of my sister who only had one supplier of bangus in the market, they can dictate their asking price which in turn would minimize my sister’s profit.
THE THREAT OF NEW ENTRANTS. After a while, people got tired of my sister’s products and looked for alternative offerings. To keep her business afloat and provide other products and services to her already existing consumer base, she started a sari-sari store. Profits from selling rellenong bangus and embotido and an additional loan became the capital she used to put up a sustainable source of income.
There are industries where new entrants are not a threat because of the heavy financial investment needed to join the market, like in the case of the airline or automobile manufacturing industries. But for others where entrants can easily join, like in the case of the online marketplace or the buy-and-sell apps, competition can be cutthroat especially when similar products can be bought at a lower price. New entrants mean new options for consumers and lesser chances to choose your product offerings. This goes without saying that you need to have a competitive advantage over what is currently available in the market.
Understanding how you fare against your competition can help minimize loss to your business and at the same time help you cope with new and emerging trends in your industry. It also helps you to establish a bottom line and discern when to branch out to other industries, or to just totally quit.