Business // MARKET SELECTION & FIVE FORCES STRATEGY TOOL
Market Selection and Five Forces Strategy Tool
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Market Selection and Five Forces Strategy Tool
Introduction
Business leaders these days undergo serious tasks to find their best strategies to grow and succeed in the market. They observe and study the market before they dive into the sea of failures and successes. They select their market and find customers in the field before they decide to invest their money in the new business. Of course, they understand the concept of market selection as a way to evaluate and identify potential markets to operate their processes and transactions while competing with others. This market selection involves analyzing some factors, such as market size, growth potential, customer needs and preferences, competition, and regulatory environment, and these factors can help determine the apt markets for the products or services of the company. Once corporate managers select their market, they can create and develop their business strategies to impact the success and sustainability of a company. In other words, they focus on targeting their customer needs, ensuring market attractiveness and growth opportunities, constructing a competitive landscape, empowering resource allocation, managing risks, and advancing long-term sustainability.
The Influence of Market Selection on Business Strategy Development
This discussion focuses on the influences of market selection on business strategy development. These influences tend to concentrate on the intensity of rivalry, the intensity of supplier power, the importance of identifying and choosing industries and markets, and the impact of gaining and sustaining competitive advantage on strategy development uing six tools and other strategies (Wurthmann, 2020; Narayanan & Fahey, 2005). In the end, this market selection helps business managers develop their business strategies.
The Intensity of Rivalry
Business leaders need to understand the intensity of rivalry within an industry. They have to learn to consider these crucial factors when creating and increasing these business strategies. They have to include the Rivalry Strategy Tool to provide a specific framework for appraising and calculating the intensity of rivalry based on several factors:
- Number of Competitors. Business frontrunners should seek high competition when they observe many players who deal with similar offerings. They have to excel and do something using new innovative technologies better to outsmart their competitors (Jarzabkowski & Kaplan, 2015). This intense rivalry always happens, so company leaders need to compete for differentiation, market share, and pricing. On the other hand, this rivalry may be lower in a market with few competitors.
- Industry Growth Rate. Company frontrunners know that higher growth rates can lead to increased rivalry. They understand this market event as they have to strive hard to capitalize on market expansion and capture market share. Business administrators, however, know that a slow-growing market can end or reduce rivalry.
- Product Differentiation. Corporate executives know that market competition arises when products or services are highly comparable (Cescon, Costantini, & Grassetti, 2019). They can beat the market like that if they deliver unique offerings or if they have a strong brand differentiation strategy to lead the market.
- Exit Barriers. Business managers manage to grasp the idea that high exit barriers, such as high fixed costs or strong emotional attachments to the industry, can even increase rivalry. Of course, this market event transpires because many companies remain in the market even during difficult and puzzling times.
To evaluate these factors using the Rivalry Strategy Tool, business leaders need to determine whether the intensity of rivalry within an industry appears to be low, medium, or high. This market assessment helps business managers shape their business strategies and change their human capital (Anastasiu, Gavriş, & Maier, 2020). They only have to identify some market areas to improve for the competitive advantage, product differentiation, and impending collaboration opportunities.
The Intensity of Supplier Power
Corporate managers always look for ways to grow and thrive in the market. They consider the supplier power that can affect the business strategy. Using the Rivalry Strategy Tool, business managers can determine their success in the market as this supplier power helps determine business growth and development:
- Supplier Concentration. Business leaders acquire greater power to dictate the terms and conditions, as well as the quality and the price of products when few suppliers rule the market. However, numerous suppliers can dwindle the given supplier power.
- Switching Costs. Numerous business struggle in the market if suppliers obtain more power. Of course, switching suppliers is high-priced, and suppliers gain more power. On the other hand, business leaders can weaken the power of the suppliers if they have low switching costs.
- Differentiation of Inputs. Business leaders can even distinguish the growing power of suppliers compared to those who provide standardized inputs with unique and highly differentiated inputs.
- Importance of Suppliers. Business leaders always protect and take care of their suppliers because they are important in company operations.
To analyze these factors, business frontrunners recognize that this Rivalry Strategy Tool helps define and describe whether the power of suppliers is low, medium, or high. This assessment helps develop more strategies to alleviate supplier power, as well as discuss the given favorable terms (Dyer, Godfrey, Jensen, & Bryce, 2021; Wurthmann, 2020). In this case, these business managers can then explore many sourcing options and construct strategic partnerships.
Importance of Identifying and Choosing Industries and Markets
The success of the business depends on the function and performance of business leaders. Once they correctly choose and identify industries and markets, they can work their way to succeed in the market (Narayanan & Fahey, 2005). They can even use their industry and market selection method to influence the market with its growth opportunities and competitive landscape, as well as profitability. The failure of these business leaders to choose the right markets can result in a lack of market fit, increased competition, and squandered growth opportunities, as well as resource allocation. Therefore, choosing and identifying the right market can make business leaders grow and thrive.
To think about this factor, for example, business managers fail to grow and succeed because they invest heavily in a declining company without looking at the market segment and misjudging the market trends. The company managers can face fierce competition, as well as meet declining sales and reduced profitability because of the denial of the important factors – choosing the right market through the five forces strategy (Porter, 2008, p. 78). What happens next ultimately jeopardizes the company’s long-term viability of the products and services.
Impact of Gaining and Sustaining Competitive Advantage on Strategy Development
Business experts know the position and prominence of accounting for gaining and sustaining competitive advantage. They understand that a few successful business strategies like the five forces or porter’s analysi help them grow their operations (Porter, 2008). In this case, they make sure to gain a competitive advantage so that they can possess a firm stand to differentiate themselves in the strategic management effort (Dyer, Godfrey, Jensen, & Bryce, 2021). Once they do, they can then outperform competitors, while achieving their superior financial performance. Underlining this competitive advantage in the strategy development process, business managers can take the chance to integrate the following key capabilities in terms of their market positioning techniques, their resource allocation, their differentiation, and sustainable performance, as well as the notion of Adaptation and Evolution.
Conclusion
Understanding the market and integrating the factors that affect market selection can help business experts grow and thrive. The process of success in the market takes effort and skill to prosper while analyzing and implementing the important dynamics and elements, such as competition, customer needs and preferences, growth potential, market size, and regulatory environment. These important factors can help identify the fitting markets for the products or services. Moreover, these corporate managers can develop their business methods and strategies to warrant the success and sustainability of the organization. Business leaders now take time to focus on their customers and the markets. They hope to target their valuable customers and their needs, make certain to attract the market and its growth opportunities, and build a competitive business landscape, while empowering resource allocation, managing some risks, and advancing long-term sustainability. The use of accounting for gaining and sustaining competitive advantage remains fundamental to the success of business strategy development. In the end, business managers can accomplish their competitive position and achieve superior performance if they learn and manage to position themselves in the market, allocate resources for their business transactions, differentiate their offerings, and aim for sustainable performances to thrive in the marketplace.
References
Anastasiu, L., Gavriş, O., & Maier, D. (2020). Is human capital ready for change? A strategic approach adapting Porter’s five forces to human resources. Sustainability, 12(6), 2300.
Cescon, F., Costantini, A., & Grassetti, L. (2019). Strategic choices and strategic management accounting in large manufacturing firms. Journal of Management and Governance, 23(3), 605-636.
Dyer, J. H., Godfrey, P. C., Jensen, R. J., & Bryce, D. J. (2021). Strategic management: Concepts and cases. Hoboken, NJ: John Wiley & Sons.
Jarzabkowski, P., & Kaplan, S. (2015). Strategy tools‐in‐use: A framework for understanding “technologies of rationality” in practice. Strategic Management Journal, 36(4), 537-558.
Narayanan, V. K., & Fahey, L. (2005). The relevance of the institutional underpinnings of Porter’s five forces framework to emerging economies: An epistemological analysis. Journal of Management Studies, 42(1), 207-223.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78.
Wurthmann, K. (2020). The essential mix: Six tools for strategy-making in the next decade. Journal of Business Strategy, 41(1), 38-49.
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