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Competition analyzes the intensity of the competition in the

Competition
is a company’s biggest threat no matter if a business is big, small, start-up
or established. A business must question who their competition is and how the
competition is going to affect the current bottom line and the future planning.
To answer these questions, the competition must be analyzed. The Porter’s Five
Forces model helps to businesses to analyze the competition using five
categories. This model was developed in 1979 by Michael E. Porter of Harvard
University. The five categories are designed to help determine the profitable
od a company, based on businesses in the local market. The origin of
profitability is “identical regardless of industry.” The structure of an
industry drives both competition and profitability, not what an industry
produces. According to Porter, companies such as software and toiletries are
profitable when forces are benign. Companies such as airlines and hotels are
less profitable when forces are intense.

The
first force in Porter’s model is competitive
rivalry. This force analyzes the intensity of the competition in the
marketplace. This is determined by the amount of the existing competitors and
what they capable of doing. Rivalry competition is high when there are a small
number of businesses selling a similar product or service cheaper and a
customer can switch. High rivalry competition can create advertising and price
wars between competitors. In return, this can hurt a business’s bottom line. For
example, Under Armour’s competitors Nike and Adidas have large resources at
hand which helps them gain market share in the apparel category. The second
force in Porter’s model is bargaining power of supplies. This evaluates the power
and control a supplier has over the possibility of increasing their
prices. When a business’s supplier increases the prices, the company’s profit
decreases. This forces also looks at the number of suppliers there are
available. Suppliers have the upper hand when there are fewer of them. If there
are an abundance of suppliers, the less power they have. Under Armour has
dozens of suppliers located in multiple countries who produce their products.

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The
third force is bargaining power of customers. This force examines how consumers
can affect the pricing and quality. The buying power consumers have is high
when there are few customers. The seller’s power increases when there are any
customers. Under Armour has customers who range from wholesale customers to end
customers. Their wholesale customers such as Dick’s Sporting Goods have
bargaining leverage over Under Armour because they could substitute their
products with the competitors for higher margins. The fourth force is the threat of new entrants. This force looks at how
new competitors who are joining the market can affect the business’s position.
There is a greater risk when a competitor can easily join the marketplace. If
there are strong barriers to enter the market, then a business can maintain a
favorable position and take advantage. The threat of new entrants is low for
Under Armour because there are large costs associated with branding,
advertising and product demand. Although, existing sports apparel businesses
can enter the performance apparel industry in the future. The last and final
force is the threat of substitute products or services.  This force analyzes how effortless it is for a customer to switch from
buying a business’s products or services to the competitor. Substitutes that
are cheap and easy can weaken a business’s position and lower their
profitability. The threat of substitute products is low because it is expected
that the demand for performance apparel will continue.

 Once the analysis of the five forces has been
finalized, a strategy is executed to expand competitive advantage. Porter has
identified three strategies that can be performed in any industry. The first
strategy is cost leadership. The goal of this strategy is to grow profit by
decreasing the costs while charging consumers the industry-standard prices. The
second strategy is differentiation. This strategy is put into effect by making
products different from the competitors. This step requires the company to do
their research and have successful sales and marketing teams. The third
strategy is focus. This strategy requires
a company to select a targetable market to sell its products or services. A
company must have a high understanding of the market, sellers, buyers and
competitors. 

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