We can't only focus on the competitors in front of us; there are more competitive forces than we think—roughly five kinds, namely:
Players - the competitive power of existing rivals in the industry
Direct competitors are the visible, head-to-head rivals most people can recognize. The threats they pose come from competing along the same dimensions—for example, improving product performance, lowering prices, broadening the product portfolio, or securing and innovating in marketing and promotional resources. Competition in the industry is inevitable. The way to ease or temporarily resolve it is to develop and demonstrate your own strength, making them see that the cost of taking you out would be too high, so they have no choice but to work with you and find ways to grow the pie together.
New entrants — the ability of potential competitors to enter the industry.
New entrants are a common enemy of both you and your long-standing rivals. New competitors are usually drawn in by two things: low barriers to entry and the prospect of making a lot of money. Together, these temptations keep bringing newcomers into the industry, creating a threat. Many of these newcomers are disruptors who don’t understand the industry’s rules of survival. They try to upend the landscape through price wars or free offerings, only to find that they can’t sustain themselves amid their explosive growth. They ultimately implode, while also hurting the other competitors already in the market. Unfortunately, every year brings newcomers who implode, and every year new players enter the market. To keep more disruptors from entering, outsiders need to see that it’s getting harder and less profitable to operate in the industry. If they don’t believe that, you can work with your established rivals to raise the barriers to entry. Of course, an outsider can also acquire an existing company in the industry, enter with capital behind them, assess the situation, and establish themselves successfully.
Substitutes — the ability of cross-industry alternatives to replace your offering.
A substitute is not your rival’s rival; it is a common enemy shared by you and your new and old rivals. Seemingly harmless rivals that appear to have nothing to do with your business are often the most frightening. The damage they can do has no ceiling: they can hit an entire industry, as food delivery has done to instant noodles, and high-speed rail to intercity buses. Guarding against cross-industry attacks is exhausting, but you have to do it; otherwise, you start seeing threats everywhere and worrying needlessly. That’s why companies with the means often make forays into other industries and take on side businesses, to avoid being wiped out when disaster strikes. Those without the means should keep a close eye on major developments in PEST and treat them as hypothetical enemies, so they can react faster if one actually emerges.
Suppliers — suppliers’ ability to charge a premium
A supplier’s stone-laced rice can leave you paying more for less. Suppliers powerful enough to dictate terms to their customers often fall into these categories: you can only sell their products; they offer specialized features with no substitutes in their industry, and if you don’t buy from them, plenty of others will; they have many buyers; they can easily enter your industry and turn into your competitors; or companies upgrade to produce and sell on their own. It’s like buying rice with stones in it: you can still eat it, but it’ll hurt your teeth.
Buyers — buyers’ bargaining power
Powerful buyers can make you offer more, better, and cheaper products and services. Those able to dominate the seller often fall into these categories: you can sell your goods to only a very small number of buyers; or a single purchase from them can keep you going for three years, and they can afford to stop buying from other suppliers for a while. These are formidable, sharp-edged buyers. Cut them off, and you’ll bleed too.
Porter's Five Forces model helps us think about and analyze the basic competitive landscape of an industry, so it has become an analytical tool frequently used by enterprises when formulating competitive strategies, and not limited to corporate strategic development. In fact, anything that follows the laws of free competition can use this model to identify the main factors affecting your ability to achieve your goals. For example, if you want to pursue the girl of your dreams, who are the other suitors? You need to observe which good buddy is willing to help you create romance—you need to win him over. How much effort and money do you need to spend early on to sweeten him up? You need to figure out whether the men the girl newly meets are also suitors. You need to study the ways of things. At the same time, you must defend over time against attacks from a higher dimension, such as some rich bachelor or second-generation rich guy confessing to her—you have to occasionally remind the girl that money cannot replace happiness, and that your love for her is irreplaceable, and so on.