Business Strategy

In his analysis of the industry’s structure, Michael Porter points to the following factors eroding industry profitability:

  1. The product is one of many such commodities available on the market
  2. Everybody generates the same costs and has access to the same technology
  3. Buyers pay attention to prices, are knowledgeable and ready to instantly switch to another vendor to get more benefits

Hence the importance of…

…Entry and Mobility Barriers

  1. Economy of scale – the bigger the scale of production, the lower the operational costs.
  2. Product differentiation – the company which differs from its competitors is under less of a competitive pricing pressure.
  3. Monopoly of key components of a success in the industry, i.e. patents and strategic location.
  4. Sunk costs – the costs that cannot be recovered once the firm has made a market exit.
  5. Distribution channels – even the best company will not become successful without the access to distribution channels.
  6. Costs of a vendor replacement– the company is in a better strategic position if the costs of a vendor replacement have to be incurred by clients.

The company should create entry or mobility barriers for its market rivals

Examples of entry barriers: a frequent user programme.

Invented by the airlines, frequent user programmes are designed to award clients who often buy a certain product.

Such programmes are most effective in the case of expensive products or services which are or can be purchased relatively often.

Examples of entry barriers include:

  • Strategic location:
    • Petrol stations
    • Fast food restaurants
    • Shops/ department stores

What can you do to set up entry or mobility barriers for your current or potential competitors?

Mirella Piwiszkis
Business Psychologist, Mentor, Founder of INSPIRE