In 1979, a famous article was published which would be used by marketers in accounting, finance and countless other industries across the world.
It was written by Professor Michael Porter, and it described five forces which shape an accountant’s competitive advantage, its profitability and its attractiveness to potential clients.
In this article, we wanted to share with you how these 5 Forces can play out in an accountant’s marketing and competitive environment. Our hope is that these will make you more aware of the tools and landscape at your disposal, so you can use them to your advantage for advancing your marketing.
So, here are the 5 Forces in more detail…
Force 1: Industry Competition
In general, the more competition you face in an industry the more difficult it is to turn a profit. Consumers have more options to consider when deciding on who to transact with, which typically places downward pressure on suppliers’ pricing.
After all, if you are too expensive then there are plenty of other accountants they can turn to as a cheaper option, for the same level of service value.
Conversely, the less competition you face as an accountant the easier it is to produce a profit. There are only so many options for your potential buyers to consider. If they find the price too high, then they possibly face the choice of either buying from you or not buying at all.
This is obviously a nice situation for an accountant to be in. However, you also need to be aware that the potential for higher profitability in your specific corner of the market also leaves it open to new players who might want to muscle in on the action.
Which leads us to the second of Porter’s Five Forces…
Force 2: New Entrants
If new players can enter an accountant’s market with a minimum viable product, sold faster and more cheaply, then you risk having the rug pulled from under your feet.
At AccountantLift, we also work with a lot of financial adviser in addition to accountants, to help them with their digital marketing efforts. In this specific sector, we are seeing the entrance of “Robo Advisers” having this effect within specific areas of the market and with particular demographics.
This is causing many of them to re-think their business model in light of new entrants to their market, who are offering a cheaper solution via a technological product as opposed to tradition, face-to-face financial advice.
Of course, the barrier to entry in a specific industry is important to consider here. This offers accountants some protection. After all, new players to the game need to overcome significant hurdles such as passing difficult accounting exams.
Let’s now move to the third of the Five Forces…
Force 3: Supplier Power
As a fundamentally service-oriented industry, accountants do not have to face the politics involved in retail, for instance, who need to negotiate with the suppliers of their product.
If an industry has only a small number of suppliers, then these suppliers wield considerable power of the product they produce – which can affect your profit margins. On the other hand, an industry with lots of suppliers has more options and therefore has more leverage in driving the price down.
Accountants are fortunate in that they do not supply a physical product, so the third of Porter’s Forces s arguably the one you need to worry less about.
Force 4: Consumer Power
If you have a lot of potential clients in your corner of the accounting market, then you have a lot more power over setting prices for your services.
If, on the other hand, there are only a handful of potential clients to attain then these people wield much more influence over your pricing. Since you need their business in order to maintain a healthy cash flow, you are more likely to need to adhere to their demands around costs.
Force 5: Threat of New Products
This is very similar to the third force above. However, this has more to do with players from other industries encroaching on your turf with a product or service that competes with yours.
How Accountants can use the Five Forces to improve their marketing efforts
There is much to say on this topic, but for now here are some takeaway thoughts which you might want to apply to your accountant marketing.
First of all, consider your competition in the digital sphere. Are lots of accountants in your local area working hard to get their website into the top spots on Google? Are any of them running Facebook Ads, or LinkedIn Ads? The level and nature of the marketing competition you face should be a big consideration when you decide on your marketing budget, and how these resources will be used.
Secondly, the second of Porter’s Forces shows how even financial services businesses need to constantly be on the lookout for new entrants to their market. It might be something as simple as a new accountant business which is setting itself up in your local area, which has invested much more time and money in developing an excellent brand to project quality to clients.
Alternatively, as the last of the Five Forces shows, it could be that developments in your market (e.g. emerging technologies) are presenting a looming threat to your business model which might eventually require a re-positioning of your business.
If this is going to be a necessary course of action down the line, then you should also start planning your marketing well in advance to facilitate a streamlined transition – communicating effectively with clients, staff and stakeholders.