cannot predict every possible outcome and so being in a constant and evolving test cycle is vital to a culture of continuous improvement – something that is a key value of effective marketing. Porter’s five forces The next model worth reviewing is the five forces analysis model by Michael Porter. This is used to analyse the level of competition within an industry by utiliz- ing industrial organization economics. The purpose is effectively to ascertain the competitive landscape and potential profitability of an industry. Any changes to these forces can directly affect an industry and the companies within it and so it is important to understand them and react to them in order to retain or gain com- petitive advantage. Michael Porter goes into a greater level of detail than we have space for here in his bookCompetitive Advantage, which has been used by stu- dents and businesses alike for many years in order to understand competition. Porter’s five forces are as follows: ● ●Horizontal competition: 1The threat of substitute products or services. 2The threat of established rivals. 3The threat of new entrants. Figure 1.1Porter’s five forces Intensity ofcompetitorrivalryBargaining power of suppliers Threat of substitute products or servicesBargainingpower ofbuyersThreat of new entrants
The Foundations of Digital Marketing 13 ● ●Vertical competition: 4The bargaining power of suppliers. 5The bargaining power of customers. Threat of substitute products or services This first force is the existence of another similar product in another industry. An example for the digital age might be landline phones versus mobile phones or, more specifically, mobile phones versus smartphones. Were a new smart- phone to be launched that charges via a pod in the home and that has specific benefits for home use, it may attract customers who have always been land- line users and so this is a substitute product threat to landline providers. There are a number of factors to consider when determining if a product is a substitute threat according to this definition. Those factors are: ● ●Switching cost: if the switching cost is low then there is a high threat. ● ●Pricing: if the other product or service is relatively low in price then again the threat is high. ● ●Product quality: if the potential substitute product or service is of supe- rior quality then the threat is high. ● ●Product performance: if the other product is superior in performance then the threat is again high. What does this mean for digital marketing?This threat is ever present in the digital age as companies continue to innovate. Tablets have threatened the laptop market and phablets have in turn threatened the tablet market. Holograms, drones and many others continue to impact on more traditional and established industries.
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