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Threat Of New Entrants | Porter’s Five Forces Model
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Porter's five forces analysis - Wikipedia
Monopolistic Competition – definition, diagram and examples
There may be many ways to determine whether there is an active threat to a market or industry from new entrants. Most of these can be categorized within the potential barriers to entry that exist for that industry. These barriers may make it easy or difficult for a business to enter into the market and establish their presence.
Barriers may exist in some industries or in some markets but not in others.
There is also a chance that they exist but are not enforced strictly. There are many types of barriers to entry including those created by the government, by the existing companies, by the nature of the business and by the existing industry structure. There are many types of barriers to entry into a market. Some of these include:. When analyzing the threat of new entrants, there are two things to keep in mind. One is that not all possible barriers to entry may apply to all organizations, and two, the existence of barriers to entry does not mean that the decision to enter the market should be cancelled.
Instead, there needs to be an analysis and understanding of these barriers and strategies formed to counter these threats. As an existing company, it is also a good idea to keep a check on the industry dynamics to anticipate the threat of new entrants as the industry changes and evolves. Some questions to ask are given below.
These may help in determining if the barriers to entry are low or high. These will then directly impact whether the threat of new entrants is high or low. Answering these questions realistically and candidly will help a company establish the barriers surrounding a potential new market or its own market and consequently, the nature of the threat from new entrants. Existing firms in the market can take concrete steps to discourage new entrants from making moves to enter the market.
These steps, or strategic entry deterrence, can be any action towards creating or strengthening barriers to entry for the industry. Not all of these activities are positive actions however, and several can come under anti-competitive practices and may open a company up to scrutiny and in violation of competition laws and regulations. This action can come under anti-trust practices and monopoly concerns so the decision to use this should be taken after careful consideration of possible repercussions.
How an incumbent firm or firms respond to the threat of a new entrant can depend on a number of factors. No all industries and not all companies will respond in a similar way. In addition, the strength and aggression of the response can also vary according to current market conditions, trends and consumer behavior. Additional country specific sites are being developed with international shipping available on some products to other parts of the world.
Amazon began as an online supplier of books. The company has also diversified into consumer electronics production and distribution with the most popular items being the Kindle E-book reader and Kindle Fire tablets. Another new technology being offered is cloud computing services. Given the nature of the business, there is always a threat of new entrants as it is relatively less costly to enter the market and setup operations.
There is no additional cost incurred to set up any physical stores and locations. In addition, traditional established physical stores can easily move into online retailing and bring with them their substantial consumer base. These stores such as Target or Walmart, already enjoy economies of scale, have recognizable brands and a strong supply chain.
So they do pose strong competition to Amazon.
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That said, the threat from brand new entrants remains low as it would be nearly impossible for a new company to match the cost advantages, economies of scale and variety of offering as Amazon. These advantages will deter most brand new entrants to the market. Amazon works with over 10, vendors and boasts an impressive 75 percent repeat purchasers.
Its market capitalization is substantially ahead of its nearest competitors. As the pioneer online retailer, Amazon has the necessary brand awareness and credibility as a strong reliable presence in the market. Way beyond a bookstore now, Amazon. This means that there is a strong supplier base relationship that cannot be replicated. In addition, as a bookseller and a provider of other entertainment channels such as movies, videos and music, Amazon. E-mail is already registered on the site.