These 5 forces can determine the long-term profitability of a company. The higher the threat, the lower the profits. Either build a defense against these forces or find an industry where the forces are weaker.
Appeal to a customer segment, find a base of differentiation, and the competition’s advertising will have no effect. Be so amazing that customers naturally prefer you.
Differentiation just takes creativity. Look around and find some object. If you were selling that object, how would you differentiate it? If someone can do this with commodities, you can too.
During the Civil War, the Confederate army at Gettysburg had a better strategy but they didn’t recognize and adapt to new circumstances. The result? Well you know the rest.
A company creates a strategic advantage when it has various connected activities that support its core differentiating value. Southwest was able to beat other airlines with low ticket prices by using auto ticketing and a standardized fleet along with frequent reliable departures and by using a lean, highly trained staff.
Competitors change the game. You may think all is well with your projections but did you consider what happens when someone else enters? Will it change your sales price and have an impact on your profits? You have to think through the various scenarios before going all in.
Running your idea through the VRIO framework can help determine whether or not you will have the chance for a sustained competitive advantage.
There are two types of strategy with regards to competition: Red and Blue oceans. Red oceans are filled with competition. Before the Ford Model T the automobile landscape was expensive. Henry Ford decided to create an uncontested market space with a cheap alternative—and won.
Alliances are critical in expanding your business, but they need to add value that you couldn’t get on your own. If Mike can make 10 cups and 2 lemons an hour and John the opposite, you could form an alliance to produce more of both, faster. Make sure you can articulate what specific value they provide and no matter what, make sure you have a legally binding contract set up.
