https://www.sba.gov/business-guide/plan/market-research-competitive-analysis

Free small business data and trends

There are many reliable sources that provide customer and market information at no cost. Free statistics are readily available to help prospective small business owners.
Consider these types of business statistics in your market research and competitive analysis:

Focus	Goal	Reference
General business statistics	Find statistics on industries, business conditions	NAICS, FedStats, Statistical Abstract of the United States, U.S. Census Bureau
Consumer statistics	Gain info on potential customers, consumer markets	Consumer Credit Data, Consumer Product Safety
Demographics	Segment the population for targeting customers	American FactFinder, Bureau of Labor Statistics
Economic indicators	Know unemployment rates, loans granted and more	Consumer Price Index, Bureau of Economic Analysis
Employment statistics	Dig deeper into employment trends for your market	Employment and Unemployment Statistics
Income statistics	Pay your employees fair rates based on earnings data	Earnings by Occupation and Education, Income Statistics
Money and interest rates	Keep money by mastering exchange and interest rates	Daily Interest Rates, Money Statistics via Federal Reserve
Production and sales statistics	Understand demand, costs and consumer spending	Consumer Spending, Gross Domestic Product (GDP)
Trade statistics	Track indicators of sales and market performance	Balance of Payments, USA Trade Online
Statistics of specific industries	Use a wealth of federal agency data on industries	NAICS, Statistics of U.S. Businesses

Porter's Five Forces: Analyzing the Competition

By Marci Martin, Business News Daily Contributing Writer June 26, 2017 09:56 am EST

One of the biggest threats to a business – startup or established, small or Fortune 500 – is competition. Who is your competition? How are their actions in the marketplace going to affect your current bottom line and future planning?
To answer those questions, you must analyze the competition. One way to do that is by using Porter's Five Forces model to break them down into five distinct categories, designed to reveal insights.
Originally developed by Harvard Business School's Michael E. Porter in 1979, the five forces model looks at five specific factors that help determine whether or not a business can be profitable, based on other businesses in the industry.
"Understanding the competitive forces, and their underlying causes, reveals the roots of an industry's current profitability while providing a framework for anticipating and influencing competition (and profitability) over time," Porter wrote in a Harvard Business Review article. "A healthy industry structure should be as much a competitive concern to strategists as their company's own position."
According to Porter, the origin of profitability is identical regardless of industry. In that light, industry structure is what ultimately drives competition and profitability —not whether an industry produces a product or service, is emerging or mature, high-tech or low-tech, regulated or unregulated.
"If the forces are intense, as they are in such industries as airlines, textiles, and hotels, almost no company earns attractive returns on investment," Porter wrote. "If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies are profitable."

Understanding the Five Forces

Porter regarded understanding both the competitive forces and the overall industry structure as crucial for effective strategic decision-making. In Porter's model, the five forces that shape industry competition are:

1. Competitive rivalry

This force examines how intense the competition currently is in the marketplace, which is determined by the number of existing competitors and what each is capable of doing. Rivalry competition is high when there are just a few businesses equally selling a product or service, when the industry is growing and when consumers can easily switch to a competitor's offering for little cost. When rivalry competition is high, advertising and price wars can ensue, which can hurt a business's bottom line.

2. Bargaining power of suppliers

This force analyzes how much power a business's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business's profitability. In addition, it looks at the number of suppliers available: The fewer there are, the more power they have. Businesses are in a better position when there are a multitude of suppliers.

3. Bargaining power of customers

This force looks at the power of the consumer to affect pricing and quality. Consumers have power when there aren't many of them, but lots of sellers, as well as when it is easy to switch from one business's products or services to another. Buying power is low when consumers purchase products in small amounts and the seller's product is very different from any of its competitors.

4. Threat of new entrants

This force examines how easy or difficult it is for competitors to join the marketplace in the industry being examined. The easier it is for a competitor to join the marketplace, the greater the risk of a business's market share being depleted. Barriers to entry include absolute cost advantages, access to inputs, economies of scale and well-recognized brands.

5. Threat of substitute products or services

This force studies how easy it is for consumers to switch from a business's product or service to that of a competitor. It looks at how many competitors there are, how their prices and quality compare to the business being examined and how much of a profit those competitors are earning, which would determine if they can lower their costs even more. The threat of substitutes are informed by switching costs, both immediate and long-term, as well as a buyer's inclination to change.

Example of Porter's Five Forces

There are several examples of how Porter's Five Forces can be applied to various industries online. As an example, stock analysis firm Trefis looked at how Under Armour fits into the athletic footwear and apparel industry.
Competitive rivalry: Under Armour faces intense competition from Nike, Adidas and newer players. Nike and Adidas, which have considerably larger resources at their disposal, are making a play within the performance apparel market to gain market share in this up-and-coming product category. Under Armour does not hold any fabric or process patents, and hence its product portfolio could be copied in the future.
Bargaining power of suppliers: A diverse supplier base limits bargaining power. Under Armour's products are produced by dozens of manufacturers located across multiple countries.
Bargaining power of customers: Under Armour's customers include both wholesale customers as well as end customers. Wholesale customers, like Dick's Sporting Goods and the Sports Authority, hold a certain degree of bargaining leverage, as they could substitute Under Armour's products with those of competitors to gain higher margins. Bargaining power of end customers is lower as Under Armour enjoys strong brand recognition.
Threat of new entrants: Large capital costs are required for branding, advertising and creating product demand, and hence limits the entry of newer players in the sports apparel market. However, existing companies in the sports apparel industry could enter the performance apparel market in the future.
Threat of substitute products: The demand for performance apparel, sports footwear and accessories is expected to continue, and hence we think this force does not threaten Under Armour in the foreseeable future.
Trefis has also completed Porter's Five Forces analyses of companies, including Facebook, Nike, Coach and Ralph Lauren.

Strategies for success

Once your analysis is complete, it is time to implement a strategy to expand your competitive advantage. To that end, Porter identified three generic strategies that can be implemented in any industry, and in companies of any size:

Cost leadership

Your goal is to increase profits by reducing costs while charging industry-standard prices, or to increase market share by reducing the sales price while retaining profits.

Differentiation

To implement this strategy, make the company's products significantly different from the competition, improving their competitiveness and value to the public. It requires both good research and development and effective sales and marketing teams.

Focus

A successful implementation means the company selects niche markets in which to sell their goods. It requires intense understanding of the marketplace, its sellers, buyers and competitors.
More information about the generic strategies is available in Porter's 1985 book, Competitive Advantage (Free Press).

Alternatives and addendums

While Porter's Five Forces is an effective and time-tested model, it has been criticized for failing to explain strategic alliances. In the 1990s, Yale School of Management professors Adam Brandenbuger and Bare Nalebuff created the idea of a sixth force, "complementors," using the tools of game theory. In their model, complementors sell products and services that are best used in conjunction with a product or service from a competitor. Intel, which manufactures processors, and computer manufacturer Apple could be considered complementors in this model. More information can be found at Strategic CFO.
Additional modeling tools are likely to help you round out your understanding of your business and its potential. A value chain analysis aims to help companies understand where they have the best productive advantage, while the BCG matrix helps companies identify which products are likely to benefit the most from increased investment.
Additional reporting by Katherine Arline and Chad Brooks. Some source interviews were conducted for a previous version of this article.

Marci Martin: With an Associate's Degree in Business Management and nearly twenty years in senior management positions, Marci brings a real life perspective to her articles about business and leadership. She began freelancing in 2012 and became a contributing writer for Business News Daily in 2015.

https://www.businessnewsdaily.com/5693-bcg-matrix.html

What Is a BCG Matrix?

By Marci Martin, Business News Daily Contributing Writer May 12, 2017 11:24 am EST

Any business knows that, to survive, it has to have products that bring in money now and products that will bring in money in the future, and identify which products are a drain on resources without potential to come back. While it's easy to identify the profitable products, determining how the rest of your portfolio fits into the growth scheme can be harder. The BCG matrix was designed as an analysis tool to help you determine the role of products on your future profit margin so you can decide where to invest.
Created by the Boston Consulting Group, the BCG matrix – also known as the Boston or growth-share matrix – provides a framework for analyzing products according to growth and market share. The BCG matrix has been used since 1968 to help companies gain insights on what products best help them capitalize on market-share growth opportunities.
Reeves Martin, senior partner and managing director of the Boston Consulting Group, said that nearly 50 years after its inception, the BCG matrix remains a valuable tool for helping companies understand their potential.

Creating your matrix

First, you'll need data on the market share and growth rate of your products or services. When examining market growth, you need to objectively compare yourself to your largest competitor and think in terms of growth over the next three years. If your market is extremely fragmented, however, you can use absolute market share instead, according to the Strategic Thinker blog.
Next, you can either draw a matrix or find a BCG chart program online. (There are several that are free, available for subscription or part of another charting program.) In this four-quadrant chart, market share is shown on the horizontal line (low left, high right) and growth rate along the vertical line (low bottom, high top). The four quadrants are designated "stars" (upper left), "question marks" (upper right), "cash cows" (lower left) and "dogs" (lower right).

Credit: DeiMosz/Shutterstock

Place each of your products into the appropriate box based on where they rank in market share and growth. Where you choose to set the dividing line between each quadrant depends in part on how your company compares to the competition. Here is a breakdown of each quadrant:
Stars: The business units or products that have the best market share and generate the most cash are considered stars. Monopolies and first-to-market products are frequently termed stars. However, because of their high growth rate, stars also consume large amounts of cash. This generally results in the same amount of money coming in that is going out. Stars can eventually become cash cows if they sustain their success until a time when the market growth rate declines. Companies are advised to invest in stars.
Cash cows: Cash cows are the leaders in the marketplace and generate more cash than they consume. These are business units or products that have a high market share but low growth prospects. According to NetMBA, cash cows provide the cash required to turn question marks into market leaders, cover the administrative costs of the company, fund research and development, service the corporate debt, and pay dividends to shareholders. Companies are advised to invest in cash cows to maintain the current level of productivity, or to "milk" the gains passively.
Dogs: Also known as pets, dogs are units or products that have both a low market share and a low growth rate. They frequently break even, neither earning nor consuming a great deal of cash. Dogs are generally considered cash traps because businesses have money tied up in them, even though they are bringing back basically nothing in return. These business units are prime candidates for divestiture.
Question marks: These parts of a business have high growth prospects but a low market share. They consume a lot of cash but bring little in return. In the end, question marks, also known as problem children, lose money. However, since these business units are growing rapidly, they do have the potential to turn into stars. Companies are advised to invest in question marks if the product has potential for growth, or to sell if it does not.

Using the matrix to strategize

Now that you know where each business unit or product stands, you can evaluate them objectively. In an article on Marketing 91, author Hitesh Bhasin outlines four potential strategies you can follow based on the results of your BCG matrix analysis:

Build – Increase investment in a product to increase its market share. For example, you can push a question mark into a star and, finally, a cash cow.
Hold – If you can't invest more into a product, hold it in the same quadrant and leave it be.
Harvest – Reduce your investment and try to take out the maximum cash flow from the product, which increases its overall profitability (best for cash cows).
Divest – Release the amount of money already stuck in the business (best for dogs).

The article in Strategic Thinker notes that you want a balance. You need products in every quadrant in order to keep a healthy cash flow and have products that can secure your future.

The role of cash flow in the matrix

Understanding cash flow is key to making the most of the BCG matrix. In 1968, BCG founder Bruce Henderson noted that four rules are responsible for product cash flow:

Margins and cash generated are a function of market share. High margins and high market share go together.
To grow, you need to invest in your assets. The added cash required to hold share is a function of growth rates.
High market share must be earned or bought. Buying market share requires an additional increment or investment.
No product market can grow indefinitely. You need to get your payoff from growth when the growth slows; you lose your opportunity if you hesitate. The payoff is cash that cannot be reinvested in that product.

That last point is even more important now than ever. The market moves more quickly now than it did 40 years ago, and BCG has since published some recommended revisions to analyzing and acting on the matrix information. Keeping a healthy supply of question marks keeps you ready to act on the next trend, while cash cows need to be milked efficiently because they may fall out of favor – and profitability – more quickly.
"With a few tweaks, the matrix can be adapted to help companies drive the strategic experimentation required for success, even in unpredictable markets," Martin said. "The matrix needs to be applied with accelerated speed, while balancing the investments between exploration in new segments and exploitation of established segments. In addition, the investments and divestments need to be managed rigorously, while carefully measuring and monitoring the portfolio economics of experimentation."
You can find more strategies on BCG's website.

An alternative for another look

While a great tool, the BCG matrix isn't for everyone. Some businesses find they don't have products in each quadrant, nor do they have steady movement of products among the quadrants as they progress in their life cycles.
Some consultants advocate the use of the GE/McKinsey matrix instead. The GE/McKinsey matrix offers more categorization options and measures products according to business-unit strength and industry attractiveness rather than market share, the complexity of which may be outside an individual company's control. Comparing the two can reveal hidden insights that power more growth for your company.

Templates and examples

Additional BCG matrix templates and guidelines are available here:

Additional reporting by Katherine Arline and Karina Fabian. Some source interviews were conducted for a previous version of this article.

Marci Martin: With an Associate's Degree in Business Management and nearly twenty years in senior management positions, Marci brings a real life perspective to her articles about business and leadership. She began freelancing in 2012 and became a contributing writer for Business News Daily in 2015.

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https://strategiccfo.com/complementors-sixth-force-of-porters-five-forces/

Complementors (Sixth Force of Porter’s Five Forces)

By James Wilkinson on July 23, 2013 in WikiCFO

Porter’s Sixth Force Definition

Complementors, Porter’s sixth force, are companies or entities that sell or offer goods or services that are compatible with, or complementary to, the goods or services produced and sold in a given industry. Complementary goods offer more value to the consumer together than apart. When one product or service complements another there exists a condition called complementarity; a sort of commercial symbiosis. Complementors are often considered the sixth force of Porter’s industry analysis framework. The presence of Porter’s complementors can influence the competitive structure of an industry.
Download the External Analysis whitepaper to gain an advantage over competitors by overcoming obstacles and preparing to react to external forces, such as it being a buyer’s market.

Porter’s Complementors Analysis

Porter’s six forces provide a method for industry analysis. The presence of the sixth force of Porter, complementors, can benefit or hurt the firms competing in an industry, depending on the circumstances. If business is booming for the complementors, this could positively affect the business of the firms in the given industry. On the other hand, if business is slow for the complementors, this could adversely affect the business of the firms in the given industry. So, complementors and complementary goods do not necessarily increase or decrease the competitiveness of an industry, they merely add another layer to the structural complexity of the competitive environment.

Sixth force of Porter’s- Example

According to Porters six forces, complementary goods offer more value to the consumer together than apart. When one product or service complements another, there exists a condition called complementarity. For illustrative purposes, please consider the following complement examples.
A very simple example of complementary goods, the sixth force of Porter’s framework, is the hotdog and the hotdog bun. A normal consumer prefers to eat a hotdog in a hotdog bun. Rarely would a consumer purchase hotdogs without also purchasing hotdog buns, and rarely would a consumer purchase hotdog buns without also purchasing hotdogs. Under the six forces model Porter coined, these two products are complementary.
In the six forces of competition, an example of complementary industries is the tourism industry and the airline industry. When a consumer heads to a tourist destination, he or she often gets there on an airplane. Similarly, whenever a consumer travels on an airplane, that consumer is most likely going to visit a destination which is a part of the tourism industry, such as a hotel or a rental car agency. These two industries are proved complementary by the six forces analysis.
Porters sixth force has become a central theory to in business management and is commonly discussed to this day. As you use Porter’s sixth force of competition to shape profit potential, it’s important to expand analysis by evaluating the entire external environment. Download the free External Analysis whitepaper to overcome obstacles and be prepared to react to external forces.

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