Daniel Vasquez
When entering a business market, there are many different aspects that need to be imposed and
evaluated within the company’s marketing strategy in order to succeed. The marketing strategy
that is used in your business is vital to communicate your goals, and therefore needs to be fully
understood. In Marketing, there are many different business models that will help you fully
understand your business industry and help implement them into your own organization’s
strategy. The 4 different business models which will be explained below are: Porters 5 Forces of
Competition, SWOT Analysis, Product Life Cycle Analysis, and Break-Even Analysis.
Porters 5 Forces of Competition
First business model to be looked will be Porters 5 Forces of Competition. This business model
must be understood in order to know what factors determine the competitive intensity and the
markets profitability. The five forces of Porters 5 Forces of Competition are: Bargaining Power
of Suppliers, Bargaining Power of Customers, Threat of New Entry, Threat of Substitute
Products, and Competitive Rivalry within an industry.
Bargaining Power of Suppliers- Suppliers of raw materials to a firm can be a source of power.
Some factors that affect the level of power are: switching costs, strength of distribution channel,
presence of substitutes, and supplier competition. If suppliers are aware that there are few
competitors and the product they sell is not easily accessible, it is easy for them to put a higher
price on their products. To put in simple terms, the fewer the suppliers, the more power they
have. The more suppliers, the less power your supplier will have.
Bargaining Power of Customers- Customers can have power over the price. This is affected by
many different factors: the number buyers, the opportunity cost of switching to another supplier,
dependency of your product to the customer, price sensitivity, etc. For example, if demand goes
down when the prices go up, change has to be made. If the customer has more suppliers and
relies less on you, the customer will have higher power.
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Threat of New Entrants- This is affected by how easy/hard it is for somebody to enter into your
market. If the industry is profitable and it is rather quick to develop within the industry in which
you are in, the higher the risk of new entrants. If there are many economies of scales to consider
or key technologies are protected within the industry, there are rather few incentives for new
businesses to enter the market.
Threat of Substitution- This is the threat of consumers finding a different way to substitute the
product/service that you provide. A substitute product is a product with similar benefits and has
equal value as your product to the consumer. If your product is easy to substitute and substitution
is readily available, the power you have weakens. For example, if you sell orange juice at $3.00
and your competitor sells apple juice at $2.50; your customers might substitute your orange juice
for the competitor’s apple juice. In this example the customers switching cost was low and the
substitute was perceived by the customer as higher or equal value as the orange juice.
Competitive Rivalry within an Industry- The most important factor to this is how many
competitors are within the industry. If you have many competitors that offer similar products or
services as you, you will have less power. If you have a product or service that few others offer,
you will have more power. Other factors that affect rivalry are: competitive advantage,
competitive strategy, and level of advertising.
SWOT Analysis
The next business model to be looked at is SWOT analysis. SWOT is the acronym for: Stength,
Weakness, Opportunity, and Threats. A SWOT analysis is 2x2 matrix which helps develop your
marketing strategy plan. It involves the business objectives and factors that will achieve your
own business goals. The strengths and weaknesses are internal factors whereas opportunities and
threats are external factors.
Strength- When looking at strengths, you want to provide the advantages of your product or
service. This is where you will find why customers will want to buy your product over others.
Weakness- Here you will find the weaknesses of your products/services. It is useful to know
your product/service weaknesses in order to help improve.
Opportunity- Here is where you can look at what can be done in the future to help strengthen
your business. An example would be to become an international company.
Threats- This section portrays what could cause trouble to your business. For example, the ease
of entry to your industry could be a threat to your business.
Product Life Cycle Analysis
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A product life cycle plots sales of a product or service over a period of time. The life cycle is
divided into four different stages: introduction, growth, maturity, and decline. The sales curve
and the product life cycle through time can be seen in the graph below.
As the life cycle progresses, different consumers are generally attracted to certain times in the
product life cycle. The graph below portrays which consumers are attracted to different phases
throughout the product life cycle.
Break-Even Analysis
Break-even analysis identifies the difference between the total sales revenue and total variable
costs. Break-even analysis is a valuable tool in business because it evaluates the company’s
profit goals and judges the riskiness of actions.
The equation for break-even analysis is given below.
Total Revenue = Total Variable Costs + Total Fixed Costs
These are just a few business models that will help develop your own business plan. Following
these business models provided above will not promise profitability within your business, but it
will help communicate, clarify, and keep consistent the brand you are trying to create to your
consumers, employees, and investors.
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