Porter’s Five Forces and Social Business

June 27, 2012 Comments
Porter’s Five Forces and Social Business

When reading marketing articles that walk the reader through steps of client culture analysis, it is not uncommon to see the term SWOT Analysis thrown around.

Not as common, but not unheard of, you’ll even see more advanced articles that mention the 5C Analysis method. Going even deeper and more rare, (it’s actually almost as rare as seeing a Unicorn take a crap in your backyard) is seeing an article that talks about Porter’s Five Forces Analysis.

Any article that I read that so much as mentions Porter’s Five Forces, let alone explains them, already gains street cred in my book.

That’s one of the reasons I enjoyed reading this article about consultation steps from Michael Brito. It’s a great summary of what needs to be taken into account when going in to audit and help a company understand social business steps.

Sorry, I’m getting off the point. I simply wanted to introduce you to the idea of Porter’s Five Forces Analysis because today I’m going to be adjusting them to suit the needs of the business adopting a Social CRM and adopting the culture necessary to be known as a Social Business.

Here are the Five Forces as Porter saw them in 1979:

  • The Threat of New Competition
  • The Threat of Substitute Products
  • The Threat of Established Rivals
  • The Bargaining Power of Consumers
  • The Bargaining Power of Suppliers

That was then. This is now.

Porter’s Five Forces were all about understanding how brands stack up within strong or weak competitive industries.

So, not only did the Five Forces analyze a company’s weak and strong points, it analyzed them within the understandings and confines of the industry as a whole.

We’re going to look at how those principles can be applied to the Social Spheres that Social Businesses are now playing within.

1) The Threat of Competition

Okay, I know I kind of built this up to be revolutionary, but the truth is, even in the Social Business/Social CRM lifestyles, there will always be businesses out there competing with you. Not only that, but with social media getting more and more attention and traction, the rate of adoption is growing at surprising levels.

Porter believed that the introduction of more competition within the industry unhindered by incumbents could threaten the entire industry. The difference here is that on a wide scale, with social media you’re not only competing with your direct competitors, but rather any brand that can steal the mindspace of your consumers.

So, begin to evaluate how you stack up in the social world against your competitors in the following areas:

  • Social Profile Growth Rate (Yours & Competitors)
  • Brand Sentiment (Yours & Competitors)
  • How often your customers return to your profiles (Yours & Competitors)
  • How many direct competitors compete in the same networks
  • Where your consumers are also spending their time on the networks you focus on

2) The Threat of Distraction

We mentioned before how now you’re not only competing with your direct competitors, but pretty much anything else that can distract your consumers from your brand and issues.

You want to be a Social Business and need to facilitate conversations for your Social CRM to be of any value, but how can you when everyone is watching cats farting on YouTube? This goes way beyond Porter’s fear of substitute products or services because now anything can substitute for people’s attention.

So, be paying attention to:

  • What you’re sharing. (Is it boring or helpful?)
  • How often you and your competitors are sharing.
  • The ease and rate of people switching from your page to others. (aka “Bounce Rate”)
  • Perceived level of uniqueness in your content.
  • Staying power of your content. (How re-visitable is it?)

3) The Threat of the Big Dogs

So, with all those competitors and distractions out there, how can your business even begin to compete? Not only that, it’s not even an issue that there are 10,000 crappy brands out there, but there’s no way you can compete with brands like Coca-Cola, Old Navy, Zappos, Ford and Starbucks, right?

Most companies will sweat and pore over their competitive advantages and advertising budgets, but really you should be worrying more about:

  • What you can say that no one else can say.
  • How you can say it that no one else has the balls to.
  • What degree of personalization you can add that the “bigger” dogs aren’t able to.
  • How you can leverage the budget you do have within your chosen channels.
  • how you can secure your current audience before worrying about the big dogs’ audiences.

4) The Conversation Power of Consumers

“We can’t afford to be on social media, how can we control what people will say?” Sound familiar? It’s not as common these days that people swindle and barter their ways to better pricing.

The consumer definitely has control over what businesses do and how they act, to a much stronger degree now than in the past, but the roles have shifted. In the past companies had to focus solely on the consumer switching costs, distribution channel dependencies and price sensitivities, but times have changed to a degree that anyone can find almost anything at any price at any time.

Distribution channels are all but a moot point and switching costs are almost null and void. Businesses using Social CRMs now are focusing more on things like:

  • Who’s controlling which conversation.
  • What type of content moderation is set up and automated.
  • What type of responses are pre-written/automated.
  • Who has control within an organization to respond to concerns/compliments/comments.
  • What information is accessible from each contact.

5) The Controlling Power of Networks

In distribution, suppliers have all the control. In social networks, the networks have all the control.

What would happen if Facebook decided to shut down tomorrow or stop letting brands have unique pages? Where would your business be if Twitter changed their entire privacy policy? What if Instagram had been shut down after being purchased by Mark Zuckerberg and crew?

We don’t think about it a lot, but businesses have a LOT of intellectual stock in third party networks that they don’t own. We spend countless hours creating content that has the potential to disappear tomorrow. Understanding the steps to protect your business and Social CRM is vital in this environment. Steps like:

  • Always having a place online that you control.
  • Funneling all original content to a secure server to share when appropriate.
  • Reviewing privacy and promotion policies every 6 months on all chosen social channels.
  • Audit network importance based on strength of channel strategies.
  • Keep the number of social networks to a reasonable number. (I suggest 3, to start)

Okay, this post has gone on long enough, but there you have it, Porter’s Five Forces Re-Imagined. What do you think? Have you ever done a classic Five Forces Analysis? How does this one compare?

This article was originally posted on SocialCRMInfo.

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