Introduction
Successful business entrepreneurs integrate Michael Porter’s five forces as a yardstick in identifying and evaluating profitable business investments.
Porter (200) asserts that for a risk taking entrepreneur to profitably invest in a new business, in this case a stable for rent business, one must identify the buyer’s behavior, in this case tenants, suppliers powers, rivalry among competitors who may be business entrepreneurs or organizations with similar investments, threats of business entrepreneurs or organizations intending to invest in the same industry, and threat of substitute products who may include industry players who may threateningly provide alternative housing services which tenants may opt for.
To invest in the industry, the entrepreneur conducted an analysis of the strengths, weaknesses, opportunities, and threats (SWOT) prevalent within the industry players to determine the best market entry strategy.
Industry competitors included Mars Group Enterprises (MGE), Housing Finance Company (HFC), and Best Enterprises ltd (BE). Attractive growth opportunities in the stable for rent industry were analyzed and strategies to align the new business enterprise were tailored to raise profitability, competitive power of the business in the form of product differentiation, quality, pricing, and product uniqueness.
Customers’ buying behavior
According to Porter (210), customer buying behavior formed the basis for identifying and analyzing customer needs which influenced decision-making in tailoring rental houses appropriate for the customers. Marketing concepts integrated in the market research compared various aspects of the buyer’s behaviors incorporating income levels of the target market, demographic factors, family sizes, and an emphasis on customer needs.
In addition, the elements researched in the market included product pricing which influenced the pricing mechanisms with special emphasis on cost vis-à-vis floor space, legal and environmental issues which covered the customer and the entrepreneur, and social and cultural issues regarding the target market.
Of interest were the levels of commitment and motivational factors which were the driving forces in purchasing the new product. This greatly influenced the buyer’s behavior.
Some of the factors included aesthetic values associated with the rental premises, psychological factors including the esteem and safety with regard to occupying the building, consumer lifestyle which focused on one’s freedom and privacy in addition to personal feelings and factors which influence the buying behaviors of the target market. In addition, the industry was characterized by extensive buying behavior, an important concept in evaluating an investment plan.
The sensitiveness of buyers to price adjustments, concentration in terms of need and population, and the degree of dependence on existing products provided by other industry players were analyzed. This analysis was based on the readiness with which housing units could be made available between the time a customer places a request and the time they could be made available, the number of requests for the units, and the value in terms cost.
Competitive Forces
Besides conducting an analysis of customer buying behavior in the target market, it was incumbent upon the risk taking ingenious entrepreneur to identify and analyze competitive forces in the market.
According to Potter (221), for the entrepreneur to position the new business strategically and align it with the business vision, an analysis of the intensity of rivalry among industry competitors was conducted. With ingenious pricing mechanisms, high concentration in terms of market dominance, struggle for market monopoly, a high degree of indiscipline characterized by cut throat competition defined the industry competitors. Potter (245) identifies significant factors to incorporate in such a competitive environment.
These according to Potter (243) include price adjustments, product differentiation, and strong customer and supplier relationships. Setting standards tailored to meet actual customer needs was also a significant factor. To enhance forward integration of the business interest, the entrepreneur noted that a critical analysis of prices prevalent in the industry could play a critical role in positioning the business interest in a competitive and strategic advantage in the market (Marshall 1).
Porter (250) recognizes the percentage of customers as an important component signifying the business’s ability to recover invested capital from profits generated if the customer base is large enough. The growth factor was also significant in identifying the best investment strategy.
Opportunities
Growth opportunities were significant factors which impressed upon the straight thinking and honest entrepreneur in identifying those conditions which could make the enterprise a viable business venture. Internal and external factors formed the basis of the market research. According to Potter (255), internal factors were in relation to business weaknesses and strengths such as organizational culture, employee motivation, working conditions, job descriptions and design, job enrichment schemes, and employee retention schemes.
However factors incorporated in the marketing concept to counter prevalent weaknesses included product, price, promotion, and place. Skilled personnel and the ability of the entrepreneur to raise enough investment capital in the form of finance played a significant role in determining how the business’s goals and objectives could be achieved (Marshall 1). These brought to view issues of external factors summarized as PESTEL.
According to Marshall (1) an entrepreneur must be skilled in researching on issues which when put to a business’s advantage could help steer it into a competitive position. An analysis of external factors was done to identify and model the business after the political, economic, social, technological, environmental, and legal factors (PESTEL). These factors had the potential to bar entry and growth. However, if a business’s vision was aligned to these factors, the potential for entry and growth was rife.
An analysis of all these factors against the potential for entry and growth indicated a wide market, high demand for the differentiated product, and a host of other opportunities to be exploited. This was based on the degree of attractiveness in investing in the industry in terms of return on investments (ROI) and the internal rate of return (IRR).
The investment appraisal plan was based on the entrepreneur’s attitude to risk and the belief that the investment could pay dividends. Thus, the marginal efficiency of the invested capital gave a zero value of the Net Present value (NPV) based on the payback period on the invested capital. In addition, based on calculation on the data yielded on IRR, IRR was higher than the cost of capital invested and the project was acceptably viable.
Potter (254) asserts that rivalry was a critical factor particularly for new entrants. Rivalry could be sparked in a business industry with industry players who employed traditional methods of attracting and retaining customers. However, for a bold, adaptive, and honest innovative entrepreneur skilled in persuasive techniques, entry into the new industry could depend on the competitive intelligence of the risk taker in steering the new business to competitiveness in pursuing business goals and objectives
Of interest were the available opportunities for investment, growth opportunities due to persistent demand, and good income levels for the population with an almost uniform demographic characteristic for whom the business enterprise could be tailored. Marshall (1) notes that with a perseverant highly motivated entrepreneur, the new business enterprise could be skillfully tailored to buyer inclinations in which Potter (256) classifies as a threat of new entrants.
Entry of a new business into an industry marks the start of competition with varying degrees of rivalry in pricing. According to potter (256), it could be incumbent for the entrepreneur to identify industry concentration, brand uniqueness, capital costs, barriers, and other cost to strategically place the business at a competitive edge.
Business strategies
In view of the findings, the business entrepreneur could formulate a strategy aligned to the business’s vision to competitively place the business in the path to higher profitability. Strategies for power, position, strategic advantage, profitability, and a huge market share included product differentiation where customers could enjoy the same product with unique qualities, pricing mechanisms, substitutes, which addressed the customer’s needs, and a SWOT analysis.
The differentiated product may have certain characteristics tailored to address the income levels of different customers. The entrepreneur realized that different customers with different levels of income had different preferences, buying behaviors, and tastes.
Concentrating effort in the efficient utilization of the available resources to drive the business to a stronger market position, a greater market share, and a strategic position was another proposed strategy. Once a marketing plan is developed, the entrepreneur could design tactics aimed at driving the business into achieving its objectives and goals.
This could be envisaged in an innovative business model with growth strategies incorporating horizontal and vertical growth integration methods. Sustainable business profits provide business power. Profits help a business sustain itself, its employees; compete with other businesses in the same industry while carrying out other marketing programmes. Marketing consumes big amounts of money.
Thus the product, price, promotion, and place commonly referred to as the 4p’s could stem from the ability of the business to generate sustainable profits to cover all costs associated with the 4p’s. Potter (300) competitively assets that the five forces including rivalries, threat of substitutes, buyer’s power, supplier power, barrier to entry such as government, patenting, asset specialty, and economies of scale are factors to consider in devising means for accessing a market while staying at a competitive edge to gain power.
Tabulated data clarifies the fact that all the companies in the industry experienced an exponential growth, a potential motivating factor.
Works Cited
Marshall, John. Entrepreneurs Characteristics.9 Jan. 2010. Web.
Porter, Michael. E. Competitive Advantage: Creating and Sustaining Superior Performance. 1st ed.New York: Free Press, 1998.