Understand and

undertake marketing
activates
By Sh.K (PhD. Candidate)
Basic Concepts of Marketing
•Definition of Marketing: Marketing has been defined in various ways.
The definitions that serve our purpose best are as follows:
1. Marketing is a social and managerial process by which an individual or
group obtain what they need and want through creating, offering and
exchanging of product of values with others (Philip Kotler,2012).
2. Marketing is the effort to identify and satisfy customers’ needs and
wants. It involves finding out who your customers are, what they need and
want, the prices, the level of competition.
3. Marketing management is the process of planning and executing, the
conception, pricing, promoting and distributing of ideas, goods and
services to create an exchange that satisfy individual or group objectives
(American marketing Association, 2015).
Cont…
[Link] of marketing
•It involves the knowledge and all the processes you undertake to
sell your product.
•Marketing answers the following questions:
 Who are my customers?
 What are my customer’s needs and wants?
 How can I satisfy my customers’?
 How do I make a profit as I satisfy my customers?
Cont…Core Concepts of Marketing

•Needs, Wants and Demand

•Need: - Human Need is a state of deprivation of some basic satisfaction.
People require food, clothing, shelter, safety and belonging and esteem.
•Wants: - Wants are desires for specific satisfiers of needs. Shaped and
reshaped by social forces including religion, schools, families and
business cooperation. Eg. A person needs food but wants spaghetti
•Demands: - Demands are wants for specific products that are backed by
ability and willingness to buy them. Wants become demand when
supported by purchasing power.
•Product: - is anything that can be offered to satisfy a need/want.
Products broadly classify as tangibility and intangibility features.
Cont….Marketing Concept
•Value: - is the consumer’s estimate of the products overall capacity to
satisfy his or her needs.
•Cost: - is the amount of money that are going to be expended or
already incurred to acquire a product.
•Exchange: - is the act of obtaining a desired product from
someone by offering something in return.
•Transaction: - is the trade of values between two parties.
•Market: - consists of all the potential customers sharing a particular
need or want who might be willing and able to engage in exchange to
satisfy their need or want.
Marketing Philosophies:
Introduction to Marketing Philosophies:
• Marketing philosophy refers to the beliefs and principles that guide a
company’s marketing strategies. Over time, businesses have adopted
different approaches based on market conditions, customer
expectations, and competitive environments.
• There are five main types of marketing philosophies, also known as
marketing management orientations:
Production Concept
Product Concept
Selling Concept
Marketing Concept
Societal Marketing Concept
1. Production Concept
• Definition: The oldest marketing philosophy, which assumes that customers prefer
affordable and widely available products. Businesses focus on mass production and
cost reduction to increase market share.
Key Characteristics:
✅ High production efficiency
✅ Economies of scale (producing large quantities at a low cost)
✅ Focus on low prices and availability
When is it Used?
• When demand exceeds supply (e.g., early industrialization periods)
• For basic necessity products (e.g., bottled water, household goods)
In developing markets where customers prioritize affordability over features
Examples:
• ✔ Fast-food chains like McDonald’s focus on high production efficiency to keep prices
low.
✔ Budget airlines like Ryanair reduce costs by offering no-frills services to attract more
customers.
2. The Product Concept
• Definition: This philosophy assumes that customers prefer high-quality, innovative, and feature-
rich products. The focus is on continuous improvement and superior performance. Key
Characteristics:
• ✅ Focus on product quality, design, and performance
✅ Innovation-driven approach (new features, technology, upgrades)
✅ Less emphasis on marketing and more on R&D and product development
When is it Used?
• When customers value quality over price, In technology-driven industries and In luxury markets
where branding and exclusivity matter Examples:
✔ Apple focuses on innovation and premium quality to attract customers willing to pay a higher
price.
✔ Tesla promotes electric cars based on performance, technology, and environmental benefits,
rather than just price.
• ⚠ Risk: A company may focus too much on the product and ignore customer needs, leading to
failure (e.g., Kodak's failure to adapt to digital photography).
Cont..

• 3. The Selling Concept

• Definition: This philosophy assumes that customers will not buy a product unless
aggressive sales and promotions are used. It focuses on short-term sales rather than
long-term relationships. Key Characteristics:
• ✅ Heavy use of advertising, personal selling, and promotions
✅ Focus on convincing customers to buy rather than creating long-term loyalty
✅ Common in highly competitive industries
When is it Used?
• For unsought products (e.g., life insurance, blood donations, cemetery plots)
• When companies have excess inventory and need quick sales
• In highly competitive markets where demand is low
Examples:
• ✔ Car dealerships offer special promotions and discounts to encourage immediate
purchases.
✔ Telemarketing companies use aggressive sales tactics to sell insurance policies or
extended warranties.
• ⚠ Risk: A company may lose customer trust if it focuses only on sales and ignores
Cont..
4. The Marketing Concept
• Definition: This is a customer-oriented philosophy that assumes business success comes
from understanding and satisfying customer needs better than competitors. Key
Characteristics:
• ✅ Focuses on customer needs and wants
✅ Uses market research and customer feedback to guide business decisions
✅ Builds long-term relationships and customer loyalty
When is it Used?
• In customer-driven industries (e.g., hospitality, retail, fashion)
• When companies focus on personalized and customized experiences
• In highly competitive markets where customer satisfaction is key
Examples:
• ✔ Amazon uses customer data to personalize recommendations and improve user
experience.
✔ Nike listens to customer preferences and launches personalized sneakers (Nike By
You).
• ✅ Most modern businesses follow the marketing concept to remain
Con..
• 5. The Societal Marketing Concept
• Definition: This philosophy extends the marketing concept by focusing not only on customer
satisfaction but also on social responsibility and environmental sustainability.
• Key Characteristics:
• ✅ Balances profitability, customer needs, and societal welfare
✅ Uses sustainable and ethical business practices
✅ Appeals to socially-conscious customers
When is it Used?
• In industries that affect the environment (e.g., manufacturing, automotive, energy)
• By companies that want to attract ethical and eco-conscious consumers
• When governments and society pressure businesses to adopt sustainable practices
Examples:
• ✔ Patagonia promotes sustainable fashion by using recycled materials and ethical sourcing.
✔ The Body Shop focuses on cruelty-free beauty products to attract socially responsible
consumers.
• 💡 Why It Matters?
Customers today prefer brands with a purpose, making societal
marketing a powerful strategy for long-term success.
Marketing Strategy
 Generic marketing strategies are useful for understanding the marketing strategy of your
organisation. However, the marketing strategy adopted by your organisation is likely to be
more in depth and specific.
 The marketing strategy pursued by your organisation will influence the marketing activities
that you need to undertake.
 Marketing activities that focus on a cost–leadership strategy will be different from those
that focus on a differentiation strategy.
 For example,a cost–leadership organisation may use sales promotions such as bonus offers
and heavy discounting to market to its customers.
 A differentiation organisation may use personal selling and customer service to stand
out from the competition.
 The marketing strategy will also specify the target market. Does the organisation seek to
target a broad or wide market of customers, or does it focus on a narrow segment of
the market?
Cont…
Here are three examples of marketing strategies:
1. Cost–leadership strategy
The organisation markets itself and its products and services to a broad
market and seeks to gain an advantage by having a market position as
the lowest-cost provider.
• Here are key points for a **Cost-Leadership Strategy**:
1. Minimizing Costs: Focus on reducing production, operational, and supply
chain costs.
2. Economies of Scale: Achieving cost advantages by increasing production
volume.
3. Efficient Operations: Streamlining processes to maximize efficiency and
reduce waste.
4. Low-Cost Distribution: Optimizing logistics and supply chain
management.
Cont….
5. Competitive Pricing: Offering lower prices than
competitors to attract price-sensitive customers.
6. Standardization: Producing standardized goods/services
to reduce variation and complexity.
7. Technology Utilization: Leveraging automation and
innovation to lower costs.
8. Tight Cost Control: Monitoring expenses and reducing
unnecessary expenditures.
9. Bargaining Power: Negotiating better deals with suppliers
for lower input costs.
10. Target Market: Typically aimed at broad customer bases
looking for affordability.
Cont…
2. Differentiation strategy
The organisation markets itself and its products and services to a broad
market and seeks to gain an advantage through the unique quality of its
products and services.
This is done by offering a product or service that is superior in some
way to its competitors’.
 Here are key points for a **Differentiation Strategy**:

1. **Unique Product/Service** – Offering distinct features that set

the product apart.
2. **Brand Loyalty** – Building strong customer loyalty through
superior quality and experience.
3. **Premium Pricing** – Charging higher prices due to perceived
added value.
4. **Innovative Design** – Investing in creativity, technology, and
R&D for differentiation.
5. **Exceptional Customer Service** – Providing superior customer
support and personalization.
Cont….
• 6. **Strong Brand Image** – Establishing a recognized and
trusted brand identity.
• 7. **Quality Focus** – Ensuring high product reliability,
durability, and excellence.
• 8. **Targeting Niche Markets** – Serving specific customer
segments with unique needs.
• 9. **Effective Marketing** – Using storytelling, branding, and
advertising to highlight uniqueness.
• 10. **Sustainable Competitive Advantage** – Creating
differentiation that competitors find hard to replicate.
Cont….

3. Focus strategy
A focus strategy targets a specific market niche rather
than serving a broad audience.
Companies concentrate on a particular demographic,
geographic area, or customer preference and tailor
their offerings to meet the unique needs of that
segment.
Key Aspects of Focus Strategy:
Market Segmentation: Identifying and serving a well-defined
customer group.
Personalized Offerings: Customizing products or services to meet
niche demands.
Customer Loyalty: Building strong relationships with a specific
audience.
Specialization: Becoming an expert in a particular market
category.
Cont….
• Market segmentation is the process of dividing a broad consumer or
business market into smaller, more manageable groups based on shared
characteristics.
• This allows businesses to tailor their marketing efforts to meet specific
customer needs. The main classifications of market segmentation are:
1. Demographic Segmentation
• This is one of the most common segmentation methods, where the market
is divided based on population characteristics. Key Variables:
• Age (e.g., teenagers, seniors)
• Gender (e.g., male, female, non-binary)
• Income Level (e.g., high-income, middle-class, budget-conscious)
• Education Level (e.g., high school, college graduates, professionals)
• Occupation (e.g., students, business executives, healthcare workers)
• Family Size & Lifecycle (e.g., single individuals, married couples, families
Cont…
2. Geographic Segmentation: This classification divides the market based on
location-based factors. Key Variables:
• Country & Region (e.g., Africa, Europe, Middle East)
• Urban vs. Rural Areas (e.g., city hotels vs. countryside resorts)
• Climate & Weather (e.g., beach resorts in warm climates, ski resorts in colder
regions)
• Cultural Preferences (e.g., halal-friendly hotels for Muslim travelers)
3. Psychographic Segmentation: This segmentation considers lifestyle,
personality, and values to understand customer motivations. Key Variables:
• Lifestyle Preferences (e.g., luxury travelers, eco-tourists, adventure seekers)
• Personality Traits (e.g., introverts seeking quiet retreats vs. extroverts looking
for social experiences)
• Social Class (e.g., affluent travelers vs. budget-conscious travelers)
• Values & Beliefs (e.g., sustainability-conscious consumers choosing eco-friendly
hotels)
Cont….
4. Behavioral Segmentation: This method focuses on consumer
behavior patterns, such as purchasing habits and brand interactions.
• Key Variables:
• Usage Rate (e.g., frequent travelers, occasional vacationers)
• Loyalty Status (e.g., repeat customers vs. first-time visitors)
• Buying Behavior (e.g., deal-seekers, brand-loyal customers)
• Benefits Sought (e.g., customers looking for luxury vs. budget-friendly stays)
4. Customer Relationship & Retention Strategy

• Definition:
A customer relationship strategy focuses on building long-term loyalty
through excellent service, personalized interactions, and rewards
programs. Key Aspects of Customer Relationship Strategy:
• Loyalty Programs: Offering discounts, membership benefits, and special
offers.
• Personalized Services: Using guest preferences to customize their stay.
• After-Sales Service: Engaging customers through follow-up emails and
surveys.
• Customer Feedback: Collecting and implementing feedback for service
improvement.
5. Integrated Marketing Communication (IMC) Strategy
• Definition:
IMC ensures that all marketing channels—advertising, public relations, digital
marketing, and social media—work together to deliver a consistent and
compelling brand message. Key Aspects of IMC Strategy:
• Brand Consistency: Ensuring all messages align with the brand identity.
• Multi-Channel Marketing: Using a mix of traditional and digital platforms.
• Customer Engagement: Creating interactive campaigns and storytelling.
• Data-Driven Marketing: Using analytics to measure marketing effectiveness.
6. Pricing Strategies: Definition & Types
• Pricing strategy refers to the approach businesses use to set prices for
their products or services. It plays a crucial role in market positioning,
profitability, and competitive advantage.
Main Types of Pricing Strategies
1. Cost-Based Pricing: Cost-based pricing sets prices by adding
a markup to the total cost of production or service delivery.
Types of Cost-Based Pricing:
Cost-Plus Pricing: The business calculates the total cost and
adds a fixed percentage as profit.
Break-Even Pricing: The price is set to cover costs, ensuring no
profit or loss at a specific sales volume.
Cont
• 2. Value-Based Pricing
• Definition: Pricing is determined by the perceived value of the product or
service rather than just production costs. Key Aspects:
Focuses on customer perception of quality and benefits.
Used in industries where brand image and uniqueness matter.
Works well for luxury hotels, premium services, and exclusive experiences.
3. Competitive Pricing
• Definition: Pricing is set based on competitors' prices to stay relevant in
the market. Types of Competitive Pricing:
• Price Matching: Setting prices equal to competitors.
• Penetration Pricing: Setting a lower price to attract customers and gain
market share.
• Premium Pricing: Charging more than competitors to position as a high-end
brand.
Cont…
4. Psychological Pricing
• Definition: Uses psychological tactics to influence customer perceptions and
buying behavior. Common Psychological Pricing Techniques:
• Charm Pricing: Setting prices at $99 instead of $100 to make it seem cheaper.
• Bundle Pricing: Offering package deals (e.g., hotel stay + spa + breakfast at a
discounted rate).
• Prestige Pricing: Keeping prices high to enhance the perception of luxury.
5. Dynamic Pricing (Demand-Based Pricing)
• Definition: Prices fluctuate based on demand, seasonality, and customer
behavior. Key Aspects:
• Used in industries like hospitality, airlines, and e-commerce.
• Prices rise during peak seasons (holidays, festivals, events).
• Prices drop during low seasons to attract more customers.
Cont…
6. Skimming Pricing
• Definition: A high price is set initially for a new or exclusive
product/service and gradually reduced over time. Key Aspects:
• Works well for newly launched luxury hotels or innovative services.
• Used in industries where early adopters are willing to pay more.
7. Penetration Pricing
• Definition: A business sets a low initial price to attract customers,
gain market share, and later increase prices. Key Aspects:
• Works well for new hotels, restaurants, or travel services entering a
competitive market.
• Used to build customer loyalty and brand recognition.
The 7 Elements of the Marketing Mix (7Ps of Marketing)
• The Marketing Mix refers to a combination of factors that businesses use to
influence consumer decisions and achieve their marketing goals.
• Originally, it consisted of 4Ps (Product, Price, Place, Promotion), but was later
expanded to 7Ps to include People, Process, and Physical Evidence—especially
important in the service industry like hospitality.
1. Product
• Definition: The goods or services a business offers to meet customer needs. It
includes the features, quality, design, brand, and customer experience
associated with the product. Key Aspects:
• Core Product: The main benefit the customer receives (e.g., comfortable
accommodation in a hotel).
• Tangible Features: Physical characteristics (e.g., room size, decor, in-room
amenities).
• Augmented Features: Additional services (e.g., spa, airport transfers,
personalized concierge).
Cont…
2. Price
• Definition: The amount customers pay for the product or service. Pricing
strategies determine how businesses position themselves in the market
and influence customer perception.
3. Place (Distribution)
Definition: Refers to how and where a business makes its product or service
available to customers. It includes distribution channels, locations, and
accessibility. Key Aspects:
• Direct Distribution: Booking directly through the hotel’s website.
• Indirect Distribution: Using online travel agencies (OTAs) like [Link],
Expedia, and Airbnb.
• Location Strategy: Choosing strategic locations (e.g., city centers, tourist
destinations, business districts).
Cont..
4. Promotion
• Definition: The strategies businesses use to communicate with customers and
persuade them to purchase. Key Promotional Strategies:
• Advertising: TV, digital ads, billboards.
• Social Media Marketing: Instagram, Facebook, YouTube campaigns.
• Public Relations (PR): Press releases, influencer partnerships.
• Sales Promotions: Discounts, special packages, loyalty programs.
5. People
• Definition: Refers to the employees, management, and customer service
representatives who interact with customers and deliver the service
experience. Key Aspects:
• Staff Training: Ensuring high-quality customer service.
• Customer Engagement: Friendly and professional service staff.
• Guest Experience: Personalized services like greeting guests by name,
Cont….
6. Process
• Definition: The systems and procedures that deliver a smooth and
efficient service to customers. Key Aspects:
• Booking & Check-in Process: Online booking, mobile check-in.
• Service Delivery: Fast and efficient room service, concierge support.
• Customer Feedback: Surveys and reviews to improve services.
7. Physical Evidence
• Definition: The tangible and intangible elements that reassure customers
about service quality. Key Aspects:
• Ambience & Interior Design: Lobby aesthetics, luxury furnishings.
• Online Presence & Reviews: Professional website, customer testimonials.
• Branding & Uniforms: Consistent branding across staff attire and marketing
materials.
Analyse the market
• When analysing the market, your aim is to produce a
comprehensive picture of the clients, their needs and
the market in which they operate.
• Here are the points you need to consider when
analysing the market.
Cont…
Analysis
Marketing information must be analysed effectively in
order to:
define the market that your organisation competes in
determine the market’s size and growth rate
identify the customer segments that exist in the overall
market
select key segments to target with your product or
service offerings.
Cont….
Define the market
• Make sure you can accurately define the market your
organisation competes in. For example:
 A city bakery offers a wide selection of goods to clients
drawn from a wide geographic area with varied
demographics and lifestyles.
 A phone company targets its new generation products
to ‘early adopters’ (those people who want the
latest telecommunication devices).
Cont…

Size, growth and market share

The relative size, growth and market share of
competitors must be monitored to determine your
organisation’s marketing response.
The actions of larger competitors with significant market
shares will directly influence how you market your
organisation’s products and services.
Competitive advantage
• A competitive advantage is something the competitor does
better than other organisations.
• A competitive advantage is a resource that provides a
unique selling point for a competitor, such as a well-known
brand, proprietary technology, excellent customer
service or superior product quality.
Cont….
• Analyse political, economic, social and
technological factors
• It is worthwhile to analyse the current political, economic, social and
technological factors that may affect the marketing activities you plan.
• Political analysis
• The political environment is a macro-environment factor for an
organisation and refers to the actions by governments,
departments, laws, agencies and pressure groups that affect
how the organisation operates. These pressures are in force not
only in Ethiopia but also in other countries in which the organisation has
operations.
• Political variables
• The decisions made by governments and their agencies can directly
affect the organisation and its marketing activities. Political factors can
have a broad effect on all organisations, or can be directed towards
particular areas or industries.
Cont…
Weaknesses
• Weaknesses are areas where the organisation is weak
or vulnerable relative to competitors.
• Here are examples of weaknesses.
Cont…
Opportunities
• Opportunities are factors in the external environment
that the organisation can use to gain an advantage over
competitors. These are opportunities for all
organisations in the industry.
• Here are examples of opportunities.
Competitive Analysis
• Competitive analysis refers to determining the strengths and
weaknesses of competitors and designing ways to take opportunities
or tackle threats posed by competitors.
• It should answer the following questions:
• Who are your competitors?
• What are the similarities and differences between their
products/services and yours?
• What are the strengths and weaknesses of each of their products and
services?
• How do their prices compared to yours?
Uses of Competitive Analysis

• Competitive analysis advantages:

• It helps management understand its competitive advantages/ disadvantages
relative to competitors.
• It generates understanding of competitors’ past, present (and most
importantly) future strategies.
• It helps forecast the returns that may be made from future investments.
Steps of Competitive Analysis
1) Identify your competitors: Determine both local and international competitors.
2) Gather information about competitors:
what markets your competitors serve;
what benefits your competitors offer;
why customers buy from them; and as much as possible about their products
and/or services, pricing, and promotion strategies.
Cont…
3) Analyzing the Competition
After studying the information you have gathered about each of your competitors,
ask yourself these primary questions:
• How are you going to compete with that company?
• Is there a particular segment of the market that your competitor has overlooked?
• Is there a product that customers or clients want that your competitors do not
supply?
4) Develop a pricing: The last step in the process is to develop a pricing model
There are many factors that go into designing the appropriate pricing structure so
you will need to evaluate
a. what price levels your market will bear,
b. your cost for the development of your product,
c. how much profit you think is appropriate
Porter's Five Forces
Cont…
• Understanding both the competitive forces at play and the overall
market structure, according to Porter, is critical for successful
strategic decision-making and creating a convincing
potential competitive strategy.
• The five forces that form industry competition, according to Porter’s
model, are:
1. Rivalry among the existing industry
• Market Competitiveness refers to how competitive and profitable
a market is.
• The more competitive a market, the lower the profit opportunity
becomes. Consider the number of direct competitors you have in
your market, as well as the goods and services they provide in
contrast to yours, on both a macro and micro scale.
• Markets with few rivals are appealing, but they can be fleeting.
High-competitive markets, on the other hand, with several
competitors vying for the same job, will erode your power and
force you to lower your prices and develop new goods.
Cont…
• Consider how easily rivals might enter your market and
pose a threat to your business. For this, you might need
to assess the following indicators:
• Market saturation
• Market diversity
• Industry concentration
• Industry growth
• Quality differences
• Brand loyalty
• Barriers to exit
• Switching costs
2. Bargaining Power of Buyers
• When there are fewer buyers, they have more control,
but when there are many sellers, consumers can
easily turn. This enables consumers to put pressure
on businesses to provide better product at lower prices.
• Buyer control, on the other hand, is diminished when
supply is less than demand – when customers purchase
small quantities of goods and the seller’s product is
somewhat different from that of its rivals, purchasing
power is low.
Cont…
Some points to be consider
• The number of buyers: The fewer the buyers, the more they have
power. the industry's customers, has significant leverage in negotiations and
can demand favorable terms because the sellers depend on their business.
• Purchase size: Just like you head off to the big box stores to buy in bulk
for a cheaper per-unit cost on whatever now fills up your garage, major retail
chains like Walmart Inc. (WMT) buy in large volumes and can negotiate
better terms and discounts.
• Switching costs: In industries like telecommunications, where it's easy
for consumers to switch providers,
• Price sensitivity: In the fast-fashion industry, where customers are
highly price-sensitive, brands must keep their prices low to attract cost-
conscious consumers.
• Informed buyers: In many sectors, the customers are savvy, know the
competitive terrain well, and thus can negotiate better prices.
3. Bargaining Power of Suppliers

• Suppliers are powerful when they are the only source of something
important that a firm needs, can differentiate their product, or
have strong brands.
• When the power of suppliers in an industry is high, this raises costs
or otherwise limits the resources a firm needs.
Here are some factors used to measure the supplier power of an
industry:
• The number of suppliers: When few firms can give a
company something it needs to stay in business, each has greater
negotiating power. They can raise prices or reduce quality without
fear of losing business.
• Uniqueness: If a supplier provides a unique product or it's not
easy to find a substitute, it is more dominant. Businesses can't
Cont…
• Switching costs: If it's costly or time-consuming to switch
suppliers, then they have more power. Businesses are less likely to
switch, even if prices increase.
• Forward integration: If suppliers can move into the buyer's
industry, they have more power. They already have access to the
necessary supplies, making it difficult for their former buyers to
compete once they decide to enter the market themselves.
• Industry importance: When a supplier can just as easily sell
its products elsewhere, that gives it a great deal more power.
4. Potential for New Entrants in an Industry
• Industries where new firms can enter more easily almost always have
lower profit margins, and the firms involved each have less market share.
• Here are factors in measuring how much new entrants threaten an
industry:

• Economies of scale: Industries where large-scale production leads

to lower costs face less of a threat from new entrants. New firms would
need to achieve a similar size to compete on price, which might be
difficult or costly.
• Product differentiation: When existing firms have strong brand
identities or customer loyalty, it's harder for new entrants to gain market
share, reducing the threat of entry.
Cont..
• Capital requirements: High startup costs for equipment, facilities, etc.,
can deter new entrants. For example, starting a car manufacturing
business requires significant investment, so until Tesla Inc.'s (TSLA)
growth in the early 2010s, Americans from the 1950s could have named
the major U.S. car brands of the early 2000s.
• Access to distribution channels: If existing firms control the
distribution channels—retail stores, online platforms, cable
infrastructure, etc.—then new entrants would need to find a way to
replicate that structure while competing with the established firms on
price, a tricky proposition.
• Regulations: Licenses, safety standards, and other regulatory standards
can create barriers, making it too ungainly or costly for new firms to
enter the market. Examples would include those looking to build new
hotels in downtown areas or supply power to a region.
• Switching costs: If it's costly or difficult for customers to switch from
5. Threat of Substitutes

• When customers can find substitutes for a sector's services, that's a

major threat to the companies in that industry. Here are some ways that
this threat can be magnified:
• Relative price performance: If the cost of a substitute is lower and its
performance is comparable or better, customers are likely to switch to
the substitute.
• Customer willingness to go elsewhere: The threat is high if buyers find
it easy to switch to a substitute.
• The sense that products are similar: If buyers perceive that there are
few differences between your product and a substitute, even if there
are, they may be more likely to switch.
• Availability of close substitutes: there are genuinely
similar products in the market and the threat of substitutes is high,
such as between brand-name and generic medications.