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5 Forces Competing With You For Profits
Michael Porter, the godfather of strategy, has this thing called the five forces. The five competitive forces that every company competes against for profit.
As a marketing agency, we get our butts kicked by all five. Your business, your vertical, your industry might be different, but I’d be willing to bet your butt is getting kicked by all 5 as we speak too. That’s okay. I’ll walk through how each of these five forces is taking your profit and what you can do to compete successfully in the future.
So, what are the 5 forces?
- The bargaining power of buyers
- The bargaining power of suppliers
- The threat of substitutes
- The threat of new entrants
Remember the basic profit formula: profit = price – cost. Each of these forces will cause you to reduce your price or increase your service offering just to remain competitive. And, when you do that, profits suffer.
If you don’t have a strategy that beats these five forces, then you’ll never get where you want to go. You’ll never get from 10 million to 50 million, or 50 to 70, or whatever number you you’re trying to hit.
Ask yourself an honest question: “Do you know who you are competing against?” If you can honestly answer that question, then ask yourself “does my strategy beat all five competitive forces”?
Because here’s the truth of your business, all the wonderful technology in the world must work in concert, in alignment, with time-tested proven principles. People don’t change. The five forces you compete against don’t change. I don’t care what kind of technology you’re using, including ours, you’re still going to compete against these five forces.
How do rivals affect your profit?
If a rivalry is intense, your company competes away those profits by passing it on to buyers in the form of lower prices. If profit = price – cost, lower prices means lower profits. Or, you’re going to have to give away more value and therefore your cost go up and profits go down. So does your strategy effectively beat rivals?
Let me tell you how we beat rivals.
First and foremost, we track prospects daily, in real time and can identify those prospects that are actively pursuing a purchase of what you sell. They’re actively pursuing the outcome that you sell, and we can find them first before a rival.
If you’re first, you can frame the idea about what a solution should look like. You can control the perspective, you can define what value is, and you can set the buying criteria. Then everything that comes after you must compete on your terms. When you are first, you can control perspective.
Number two, we provide the targeting data in the form of ownership.
If you own and control the data, then you can target that person and have conversations with them on multiple platforms. You can have conversations about multiple topics. You can have conversations as often as you want. You can develop a relationship the same way as you do face-to-face. You start a conversation.
If you’re first, you don’t have to start selling your company. You can help them with their problem first. Because once they realize the lay of the land on their problem, then they’re going to know what solution to choose. When you’re the person that’s educating them about their problem, which you’re an expert in and have built the solution to, then you’re going to be building trust naturally by helping them, not saying, “Look how great I am.”
Marketing is not about programs. It’s about relationships. Marketing is a dialogue. Even though you’re advertising to somebody, you’re really having a conversation via your collateral or your landing page or your website. There’s a mental conversation going on. You have a mental conversation going on with me right now. This is not me talking to you. This is not a monologue. This is a dialogue.
The goal of marketing for your company is not to make a claim about your company. Your goal of marketing is to foster a conclusion, to help them see what they don’t see, help them understand what they don’t understand, so that they can make a smart buying decision. When they are ready to buy, if you’re the person that’s built the trust and educated them, they’re going to give you the sale.
To beat rivals, it’s simple: You must start the conversation first, you must develop a relationship, you must build trust by helping them first. Prospects don’t care about you. They care about their problem. There are only two things that are of interest to them: They have a problem that they no longer want or there’s a result that they want but do not have.
The bargaining power of powerful suppliers.
How do you compete against suppliers? Take Google and Facebook. If Google and Facebook charge higher prices or insist upon more favorable terms, they lower your profits. If they raise prices, your costs go up. If costs go up, profits go down. If they change terms, they increase cost, profits go down.
Do you have a solution to a powerful supplier like Google or Facebook?
Now, before I tell you how we do it, I am not anti-Google or anti-Facebook. I love and use them both. What I am is platform-agnostic. You should use Google and Facebook, but you need a strategy that offsets their power.
In our case, we own and control the targeting data. It’s not anonymously supplied to us by Google or Facebook. It’s first party data, it portable. We can take it to whatever platform delivers us the best results. We are not dependent on their cookies, on their targeting algorithms. We control the process.
Google and Facebook work on what’s called a relevance engine. They don’t work on a high bid basis. Getting your advertisement seen has nothing to do with how much you bid, what counts is how relevant the ads are to their users. They don’t care about you as an advertiser, they care about their user. They know that user will come back multiple times if the ads are always relevant to them. They’re going to come back and do more keyword searches. They’re going to come back to Facebook and spend time on the platform.
When you show ads to prospects and you don’t get a high clickthrough rate, Google and Facebook think the ad is irrelevant and they’re either going to charge you more per click or just not show the ad at all.
Since we know who is in the market for your service, we only target people who are actively pursuing what you sell. The needles and not the entire haystack. This makes our ads more relevant and then Google and Facebook will give you a lower cost per click, and that lower cost per click is going to result in a lower acquisition cost.
Back to the profit formula (profits = price – costs). When your acquisition cost goes down, profits go up.
The bargaining power of powerful buyers.
A powerful buyer forces prices down or demands more value, thus capturing more of your profits. So how do you offset powerful buyers?
Number one, fill your pipeline.
If you’re only talking to a handful of prospects, you’re going to let them dictate terms. You’re going to let them dictate price. It’s like playing poker and having a small amount of chips. You’re afraid to say anything because you’re afraid to lose what little you have. If you have a small amount of leads, you basically kiss up to every single prospect because you’re afraid they’re going to walk. Prospects know this.
Their negotiating power goes away when they’re one of thousands that you’re communicating with.
Number two, they believe you can get them to their destination.
You can’t just tell someone you are capable and trustworthy, you must show them.
In marketing, focus on education. Education is about helping your prospect understand their problem, how big the problem is, how important it is to solve the problem, and the results that come from solving the problem.
No one cares about you. They care about solving their problem. They care about the result that they’re after. Their destination, first and foremost, is to make a smart buying decision.
It’s human nature that we always want to make the best decision possible. Nobody wakes up in the morning and goes, “Oh man, I hope I get screwed today financially.” They wake up and want to get something for their money. They want to make a smart purchase. That’s why they research before they just buy. Today, people research everything. Especially big purchases, complex sales, things that have that ramifications.
In that window of your sales cycle, there is the beginning, the middle and the end. You have to meet them first and foremost where they are, and that is in the research stage. The research stage of their problem. In 2018, that research stage starts on-line.
Counter powerful buyers with education, trust a strong relationship, and a full pipeline
Threat of new entrants and the threat of substitutes.
I’m sure that there are plenty of companies that are getting into your business every day, and new companies mean new rivals. New companies mean new alternatives. What is the barrier to protect your industry from newcomers? Because they add new capacity, they offer extra products that compete against yours. More and more companies sprout up every day.
In every field there are tons of alternatives. Hello Blockbuster, this is Netflix calling. Some you see clearly, and others aren’t available just yet.
If you can demonstrate and communicate your value to your prospects, then they can determine how your value proposition stacks up against the competition, alternatives and rivals.
The value proposition you offer answers the question, “If I’m your ideal prospect, why should I buy from you?” The center of appeal is want. Tell me why somebody should buy from you and it must be something that they want.
You can’t say something like, “We care about our clients.” Yes, that’s appealing, but that’s not something they want. If my hair is on fire and you do a good job of getting there on time but not a good job at putting the fire out, does it really matter that you arrived quickly? That’s not something I want in a high-interest way.
The greater the appeal, the greater the want, and the greater the exclusivity, creates a powerful only-factor. You position your only-factors to answer the question, “If I’m your ideal prospect, why should I buy from you?”
You may match a competitor on every dimension of value except one, and in that one you need to excel.
As you can imagine, I love talking about marketing, sales, lead generation and helping my clients to grow profits.
If you’d like to talk about your business, just use the link below to schedule a brief Discovery call. Thanks for listening and I hope to talk with you soon.
We promise it will only take 15 minutes and if it goes longer, it’s because you want to keep talking.