Porters Five Forces: Rivalry
Phil Kenkel
Bill Fitzwater Cooperative Chair
As the agricultural environment becomes more complex, cooperatives must become better at
adapting to change and thinking strategically. Porter’s Five Forces Model is a widely used
method of analyzing the competitive forces in an industry. The forces are: rivalry According to
the Porter model, the first competitive force is the rivalry among existing competitors in the
industry. Rivalry is typically the strongest of five competitive forces in any given industry.
Rivalry is the competition that occurs as firms try to increase their market share.
In a grain, farm supply or cotton cooperative, rivalry occurs because members have other
opportunities to delivery their grain, gin their cotton or purchase inputs. Rivalry often focuses on
price competition with other cooperatives or independent firms attempting to sell inputs at a
lower price or offer a higher price for commodities. Rivalry is usually stronger in commodity
markets relative to differentiated products. Rivalry also increases when the overall market
demand is growing slowly and when the industry has a high fixed cost. All of these factors are
present for most agricultural cooperatives.
Cooperatives can use a number of tactics to reduce the threat of rivalry. Cooperatives can
compete head to head and through efficiency attempt to offer the best net price after the
patronage refund is considered. Instead of competing solely on price, the cooperative can also
try to distinguish itself on the basis of superior service. Offering timely and accurate application
services, sound agronomic advice and unique grain marketing programs can help you rise above
pure price competition. Your members receive a little bit of ownership and involvement with
every bushel of grain they deliver or ton of fertilizer they purchase. Selling this cooperative
advantage helps you compete with independent rivals. Any strategy that forms a stronger
relationship with your members helps to reduce the threat of rivalry.
Next week I’ll discuss the force of new competition.
8-27-2012