Frame the Competition Before They Frame You

In developed markets we often take competition and how to compete for granted. Although marketing has been both my profession and passion for much of my adult life, I didn’t realize its true power until I saw it at it’s best and worst all on the same market square. I went to Vietnam after the embargo was lifted as a guest of an American Veterans group. Prior to this trip the most adventurous travel I ever made was an excursion to the distant land of yes Canada. Landing in the country’s capital of Hanoi I could not have felt any more ill at ease had I just landed on Mars. As the days and weeks went on nothing was recognizable. The power of brands came into play when in a remote village we stopped at a shop and I recognized a bottle of Heinz Ketchup and Diet Cokes. The logos, the nomenclature and the symbols of these brands instantly translated the sum total of both the ingredients and experience of these products. They took out any guess work and made all that was unfamiliar suddenly familiar. This is the power of brands and yes marketing.

In more urban areas of the country shops were beginning to compete with liberalization or Doi Moi, a set of Vietnamese economic reforms. However, most entrepreneurs at that time didn’t quite understand the context of free markets and competition. Many shops opened next to one another selling exactly the same products. They did not study the competition and understand the dynamics to frame how they would differentiate themselves and position against rivals. Fast forward to the United States while free markets are common nature we may become far too lax in setting competitive frameworks. We are now in a global economy where large companies can suddenly be made obsolete by others working out of a garage on the next innovation let alone global competition. Labor arbitrage and State sponsored subsidies among numerous other challenges impact the ability of firms to compete everyday. One solution is to study rivalry and it’s impact on your industry and company. There are many tools to consider to help layout a competitive frame. They include consequence mapping and 5 Forces Analysis to name two.

In this article we will provide a high level overview of 5 Forces Analysis. In essence it is about identifying drivers of competition or Rivalry. They include Threats From New Entrants, Buyer Power, Supplier Power and Threats From Substitution. For example, in the illustration we look at the bank card industry when they were associations. Their was very low switching costs and plenty of credit supply leaving the consumer in the drivers seat putting downward pressure on pricing. In addition, threats from new entrants was high with low barriers to entry given creative options for capital leverage utilizing rent a bin constructs. The industry was further pressured with substitution risk with competition from cash, debit, peer-to-peer, bitcoins and countless other payment options. Lastly supplier power while still formidable had eroded with margin compression and increased competition. While the industry is a ¬†substantial part of GDP with over $1 trillion in balances and a multiple in card spend it remains an attractive target by alternative currencies. This framework may help you provide context for your industry’s competitive frame and help you shape a strategy to better compete.

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