Porter's Five Forces and Social Marketing

Background for this post:
A discussion in class last week reminded me of the importance of analyzing industry structure and the competitive environment when setting strategy. I find Porter's 5 Forces a great way to start to get my arms around an industry. However, I was disappointed in Hasting's treatment of Porter's Five forces:

• He boiled them down to four (leaving out Industry Rivalry perhaps because the concept is unsavory when we are trying to do "good"?)
• Didn't offer much insight in to how to apply them in a Social context.
• His citation isn't to the original article by Porter but to an adaptation.

Business School students in the class will be very familiar with Porter from core strategy and any other strategy classes we've taken. But for non-B-Schoolers, I would recommend reading the original Porter article. I can't find a post-able hyperlink but you can find the article by:

1. Navigating to the Kresge Library A-Z Database listing page (http://www.bus.umich.edu/KresgeLibrary/Collections/A-ZListing/)
2. Select "Business Source Complete"
3. Use the database's search tools to search for "The Five Competitive Forces that Shape Industry" by Michael Porter.

Takeaways from applying Porter's 5 Forces:

Initially I struggled a little bit to apply Porter's 5 forces to my project -- trying to get the players mapped to the right forces. I think I was getting caught up in the donor / beneficiary problem we discussed in class.

Industry definition: The first step in an industry analysis is definition. Getting the players right relies on the right industry definition. My project has a fundraising objective. When we are fundraising we are in a market for Philanthropic Giving. When the organization is performing its other function -- student housing -- it is in a different market. The roles of the various players are different in each scenario and thus result in different 5 forces analyses.

1. Suppliers: This is where I first realized I was getting mixed-up. I tried to analyze donors as suppliers -- suppliers of funds. This would be right if I was looking at the beneficiary-side. WRONG when I'm looking at fundraising. The relevant suppliers are people and entities that supply inputs to fundraising: development professionals, donor information databases, volunteers who give their time (in support of fundraising), print shops who produce solicitation materials, mail houses engaged for direct mail campaigns, etc. The bargaining power of suppliers is a medium -- each of these services exists in essentially competitive markets absent monopoly or oligopoly pricing. Most consumers of the services are not significantly large to set prices either.

2. Customers: This is where my donors fit! (If I had an objective around service beneficiaries, they would go here.) The bargaining power of customers in the market for philanthropic giving is high: although they are not concentrated, they face an almost infinite number of substitutes. The "product" they are offered is intangible and thus tricky to differentiate.

3. Threat of New Entrants: When viewed with a traditional "Porter's" lens the threat of new entrants is relatively high. There are low barriers to entry and low capital requirements. However, incumbent players do have the advantage of established donor lists and track records for responsible use of funds. (For beneficiary objective, I'd be looking at the probability of new entrants providing the same service.)

4. Threat of Substitutes: The threat of substitutes is very high. Potential donors face an almost infinite number of alternate ways to spend their money -- other causes, goods and services for themselves, saving, creating a trust or other financial mechanism to pass wealth to their heirs. (For a beneficiary objective, I'd be looking at other ways the beneficiaries could meet their housing needs: other dorms, campus apartments, living at home, etc.)

5. Industry Rivalry: Competition for donor funds is high but not necessarily acknowledged as competitive. The risk of retaliation and head-to-head competition is relatively low.