In the business world it’s normal for various enterprises to compete against each other. Only the strongest are able to survive in business world because if you can’t keep up with the pace you won’t catch up with the rest. Success in business comes after having endured so many barriers and holding on to your position even when others have let go. In business, you have to be ahead of your competitors. Competition on the other hand benefits the customers because they get goods and services at very low prices. This paper focuses on the BOS and five forces model, as strategies that have been put in place regarding competition.
One of the strategies employed by business executives is the Blue Ocean Strategy. This model is based on enterprises that have not yet been ventured into. In this strategy there are two important terminologies and they are namely red ocean and the blue ocean. The red ocean means the ventures that already there. Gingerella (2010) argues that the blue ocean strategy is not developed due to love of exploring but because of the decline in present business ventures.
The above scenario happens when there are so many people in the same industry which causes them to flood the market and in return the cost of commodities and services declines and thus they can’t reap from their businesses. The next option is the blue ocean strategy which means that the entrepreneurs have to establish different enterprises in order to prevent competition. This is what most of the firms are determined to achieve.
Sometimes exhaustion of demand is caused by people who venture into businesses without researching about their intended venture because they look at those who have made it in a particular business and think that they too can be successful like them without bothering to understand the challenges they have overcome for them to be where they are today (Kim & Mauborgne, 2005). It is said that Rome was not built in one day and the same thing applies to businesses.
There is stiff competition in business world which keeps business owners on their toes, lest they loose their customers. In business you have to do what your competitors are not doing in order to lure some customers. The idea here is to use all means to achieve customer satisfaction. Kim and Mauborgne (2005) explain that the blue ocean strategy eliminates competition by bringing a lot of diversity in business ventures.
This argument may be difficult to agree with but then there can be no competition among businesses that deal in different merchandise. For instance, there can be no competition between a mechanic and a computer technician hence if the two parties were to establish their businesses in close proximity they can never be in conflict due to competition because the computer technician can only repair computers only but not vehicles and vice versa.
The flooding of market supply is normally caused by people who want to venture into businesses that are already present because they don’t want to take the risk of venturing into new kind of businesses. What they don’t understand is that the entrepreneurs whom they perceive to be successful bore all the risks for their businesses to thrive. BOS encourages entrepreneurs to look at the environment and identify the new needs that have not been present among the people instead of engaging in businesses that already exist (Gingerella, 2010).
But for one to venture into a new kind of business it requires patience and determination because it will take time for the business to be recognized and have a considerable customer base. By the time the people around you realize that they can also do that business you are already established and their competition can not be a threat to your business because for them they are doing it due to their greed and thus they don’t do it right.
On the other hand, Michael Porter’s model is based on withstanding the competition. It is called Five Forces model and it states that businesses should ensure they are ahead of the game in order to defeat their competitors. The forces include rivalry among firms, price of alternative products, strength of consumers, strength of suppliers, and hindrance of joining/leaving the market (Gillespie, 2007) This means that business owners should observe what their competitors are doing and then advance it before they introduce it into their business.
This competition leads to decline in proceeds hence it’s not healthy for businesses, but on the contrary it benefits the customers because it ensures that customers get the best of the best from sellers of goods and services. According to Hill and Gareth (2008), businesses that get exhausted from this competition have to depart from the market and thus the ones that remain are the ones that can handle the situation at hand.
The proceeds reduce drastically because sometimes businesses have to lower their commodity and services cost in order to retain their customers. This move is necessary when a competitor or competitors lowers their prices. This might make your customers, even those who are loyal, to desert your business because they have realized they can get the same goods and services from another seller at subsidized prices. Sometimes its not the price that matters but the quality of goods and services because most of the time customers are wiling to spend extra cash on a service or a product provided its worth and durable.
Besides that, businesses and organizations improve their products and services but before the advancement of a product the organization must ensure that her competitor’s products and services do not exhibit the same features because if they do there is no need of improving the quality of the product or service. For instance, a vehicle manufacturer might consider making a car model that operates on verbal commands but before he introduces the model into the market, he has to observe the models of his rival manufacturers to ensure they don’t have such a feature. The extra feature will attract more customers and thus improve the sales.
Most businesses and organizations struggle to secure a market share among high income earners and ignore the low income earners. What they don’t know is that they can introduce tailor made products and services for the low income earners and thus incorporate them into the market share. This can be done by reducing the quantity of the product which will cause its price to go down. Although high income earners buy in bulk, their frequency of purchase is low compared to that of low income earners. This means that low income earners can bring more sales.
According to Gillespie (2007), in this model of five forces, competition intensifies due to the rise of more businesses and organizations that sale the same merchandise and services. This is because as these businesses are multiplying the customers don’t multiply hence they have to lure the customers of their rivals to buy their goods and services. This is why businesses that are already established have to put more efforts in order to retain their existing customers so that they are not snatched by their rivals.
The pace at which the market expands also affects competition. When the market of goods and services is concentrated on one particular location businesses can not grow further as opposed to when the market expands rapidly. For instance, fast foods do well in urban centers hence the owners depend on development of urban centers in order to open new branches hence the market share expands slowly. On the other hand, transport services are required almost everywhere hence the entrepreneurs can expand their empires to upcoming towns and its certain they will get customers.
Competition increases where the customers are able to shift from one product to another without incurring any costs or inconveniences. But when customers cannot easily shift from one product or service provider to another, competition reduces. This is because most people don’t want to follow the procedures that are to be undertaken when they are shifting.
Sometimes a company may be willing to close down, may be due to lack of sales but then their equipments are too complex and the kind of products or services that they provide are unique in that there are very few companies that are in that kind of business and thus no organization can purchase their equipment. This means they have to remain in business until they find another entity that can purchase their equipments.
The price of alternative items can affect the market negatively or positively. When alternative items cost less, the demand of the item in question will go down and if the price of the alternative items cost more, the demand of the same item will be high.
If the strength of the purchaser is above that of the seller the producer will have to stick to the terms of the purchasing party and this happens when there are multiple producers and a sole purchaser. This means that it’s the purchasing party that will set the price at which they will buy the products and at such point the producer has no alternative because that’s the only market for his/her goods and services and his/her competitors will be more than happy to take that share if he/she quits.
Another force of this model is assigned to suppliers of the materials that are used to manufacture the goods. If the suppliers are based in the same location they can affect the manufacturers by increasing the cost of the materials. In such case, the manufacturers have to get used to the changes because they don’t have other sources of materials. Suppliers are said to be stronger when the manufacturers can’t swap them whenever they wish without incurring costs.
Furthermore, hindrance to entry and exit also influences competition. When there are speculations of high returns one expects more organizations to venture into the said industry but then they are prevented by the initial cost of establishing their enterprise. Some government agencies limit the entry of new companies into the business world by having strict requirements that have to be fulfilled before a new organization is allowed to join a given sector (Hill & Gareth, 2008).
In conclusion, the two models can help an organization succeed when applied appropriately. Whichever strategy a business entity chooses, be it BOS or five forces model, it requires commitment and patience because sometimes the market events change abruptly without prior notice hence business executives should observe the events and indicators in order to decide which strategy is best suited for their enterprise. The two strategies share a similarity because they both deal with competition but their differences are on how they help in reducing competition. BOS model tends to eliminates competition while the five forces model identifies ways of retaining competition without losing customers.
Reference List
Gillespie, A., 2007. Foundations of Economics. New York: Oxford University Press.
Gingerella, L., 2010. The Blue Ocean and Business Models: How to go Blue and Stay Blue. Global Trendz Marketing. Web.
Hill, C. & Gareth, J., 2008. Strategic management Theory: An integrated Approach, Mason, OH: Cengage Learning,
Kim, C. & Mauborgne, R., 2005. Blue Ocean Strategy. Boston: Harvard Business School Press.