I've been working as a freelance developer for over a year now and have been building + designing software to modernize my parents' business. Before delving into the software, I had to zoom out and think big picture: I needed to understand the industry, where exactly their business needed improvements, and where my skills fit in with those needs. I wanted to share the research and analysis I conducted that informed my design process and development workflow. I learned about Porter's Model during my time at BU and it transformed my understanding of strategy, and how that can make or break a business. I used what I learned and applied it here.
Porter's 5 Forces
The model uses 5 forces to analyze a competitive market and determines a company’s strengths and weaknesses. From that information, we can use the model to inform our business strategy.
Competitive Rivalry
Soft Drink War: Coke vs. Pepsi
Clash of the Tech Giants: Apple vs. Microsoft
AI Arms Race: Google, Meta, AWS, and Microsoft battle for AI Supremacy
Traditional Dry Cleaners vs. App Powered Cleaners
More competitors in the market increases competition and innovation and decreases product prices.
If many substitutes exist, competition increases as customers are able to switch easily.
Threat of New Entrants
Industries with high initial investment have a low threat of new entrants
Airlines
Automobile Manufacturing
Natural Resources: Oil, Gas, Coal, Mining
The opposite is true for industries that require low initial investments
Dropshipping
Landscaping
Social Media / Affiliate Marketing
Traditional Dry Cleaners require significant investment upfront to obtain necessary machinery and equipment for essential business function.
The Dry Cleaning industry thus has a low threat of new entrants.
Firms with large economies of scale face less of a threat to new entrants because they are already well established.
Existing firms with strong brand identities and consumer loyalty will face less of a threat to new entrants. Think of brands such as Nike, Adidas, Wilson.
High investment industries deter new entrants.
If existing firms control a large share of the distribution network, it lowers the threat of new entrants. An example would be Coke's bottling distribution network.
Regulations such as licenses and certifications can deter new entrants as they can be costly.
If switching costs are high, the threat of new entrants is lower. For example, the cloud infrastructure industry has a very low threat of new entrants for this reason. Many people experience vendor lock in because of it.
Supplier Power
NVIDIA: controls the AI gold rush by selling tin pans and pick axes. They are the leaders in GPU advancements which is the tool instrumental to training large language models (LLMs) like Open AI’s GPT-4.
Cleaners that own their machinery control more of the supply chain thereby holding more bargaining power than the cleaners with no machinery.
The less suppliers exist, the more power they hold. If the supplier has something that is needed by many firms, the supplier holds much more bargaining/negotiation power.
If it costs too much to switch suppliers, then the supplier holds more power.
If suppliers are able to forward integrate (a form of vertical integration where suppliers move forward in the supply chain), they gain more power as they own more of the supply chain thereby increasing profits by eliminating costs.
Buyer Power
When customers hold a lot of power, they can force businesses and firms to both produce better products and drive down prices of goods or services
Walmart has high buyer power because of the volume in which they buy, which allows them to negotiate better prices of goods.
Regular vs. One Time Customers
Regular customers will hold more buyer power than one-time customers as their loyalty allows them more bargaining power + ability to negotiate prices.
Individual vs. Corporate Customers
Corporate customers will hold more buyer power because they will usually send in higher volume.
Customer Expectations
Some customers want convenience, e.g. delivery service, and these customers will hold more buyer power.
Other customers want eco-friendly services or specific solvents and will have more buyer power because they will switch or go to another firm that offers it.
The less buyers, the more power they hold.
Delta, Jet Blue, United, etc all buy aircraft from Boeing and other aerospace manufacturers; since companies like Boeing depend on airlines to make airplane sales, the airlines have a lot of buyer power!
Buyers who purchase large volumes have more power because they can negotiate lower prices (Walmart).
Customers who know the market or sector well can negotiate better prices.
Threat of Substitutes
When customers can find many substitutes for a firm or market’s service, that poses a big threat to existing companies.
The Beverage Industry is a good example; there is a rise in health drinks as people are becoming more health conscious which poses a threat to big soda.
Modern app-based firms offer convenient services and can pose a larger threat to traditional firms that do not offer those same services such as Rinse.
Price to Performance ratio: If a substitute performs as well or better AND costs lower than existing firms or services, it poses a big threat to existing firms because customers will likely make the switch.
Netflix poses a threat to cable TV as it is cheaper and offers a larger media selection and specialized options such as ad-free.
If it is really easy to switch to a substitute, the threat is extremely high.
Uber and Lyft’s ease of use and accessibility poses a threat to the taxi industry.
If customers perceive your product is too similar to a substitutes, they will likely switch.
Some cleaners only function as pickup + drop off. They require partnerships with other cleaners to actually clean, iron, dry clean their garments
The cleaners with the machinery to iron, press, and dry clean garments are the stores that do most of the work
Traditional cleaners usually dominate the market since they own the entire or majority of the supply chain
Modernized cleaning services like Rinse, Roots, Dependable offer uber-esque services for dry cleaning
These places can function as a hybrid between the former two. Their front end is a pickup and drop off store but they have a warehouse where they clean all the garments. If not, then they also partner with local dry cleaners to help them with their business. Places like Rinse are actively looking for partnerships with local dry cleaners
Low supplier and bargaining power because they depend on other cleaners
High threat of new entrants, these stores do not require much capital to open
Holds a lot of supplier power since they own the machinery needed to perform the essential function of the business. This means they have more negotiation power when making partnerships with other cleaners and less competition between other cleaners
Self-reliant; they don’t require help from other cleaners which allows them to save money and increase profits (decreases expenses, increases profits)
Low threat of new entrants. Dry cleaning machinery requires large investments up front. Shirt iron and dry cleaning machines cost tens to hundreds of thousands of dollars
Low threat of substitutes: garments that need to be dry cleaned cannot be cleaned with anything else
Low buyer power because there are very few if any substitutes
Sometimes a more convenient option (if you want your clothes delivered to your house) depending on location and personal schedule
Appeals to a younger and more tech savvy individuals
Customer Order Management
Order tracking, scheduling pick-ups or drop-offs, and managing customer preferences.
Many modern dry cleaning businesses use mobile apps or online systems for order management, which streamlines the process and improves customer experience.
Garment Collection
Garment Processing
Wash + Fold
Ironing
Dry Cleaning
Garment Packing
Garment Delivery
Customer Feedback + Loyalty Programs
Customer feedback and loyalty programs to encourage repeat business + business improvements
Reverse Logistics
Re-dos
Returns
Eco-friendly business model
Customer app-based pickup/drop-off business model
Depending on the type of cleaners you are, the more or less of the supply chain you own
The firms with machinery control their entire supply chain (or a majority of it)
Technological investments can help smaller or more niche firms grow their business
Strategic Proposal
Owning multiple firms and firm types puts you in a more profitable position
If you can control both a drop off and dry cleaning location, you cut the supplier fee out of the equation
Implement software for order management and storage
Use technology to gather data on customer feedback and order volumes
Use a software-based loyalty program (similar to Toast for restaurants) and allow customers to track visits and see potential rewards