04.05.2023

What really are barriers to entry?

Key information:

  • Barriers to entry are crucial for potential investors and entrepreneurs, who should accurately identify them before starting a new business in order to prepare an effective market entry strategy.
  • There are different types of barriers to entry, such as financial barriers or entry barriers, which can make it difficult or impossible for new players to enter the market and compete with existing companies.
  • Bringing a new product to market can be hampered by technological or marketing barriers, which can require high costs or time-consuming work.
  • New companies can minimize the impact of marketing barriers by leveraging new promotion channels, such as influencer marketing and social media, and by creating unique customer value, which can attract attention and customers.
  • The environment can be a significant barrier to entry due to environmental costs and resistance from local communities.
  • Competitive market barriers result from the existence of companies with strong market positions, which gives them an advantage over new players. The solution may be to focus on a niche market or introduce a new, innovative offering.
  • The decision to start one's own business must be supported by a thorough analysis, an assessment of potential risks and how to overcome them. The entrepreneur should also keep in mind that the greater the barriers to entry, the less competition, but also the greater the risks and the greater the chances for growth and profit.

The entry of a new enterprise into the market is not at all as simple as it may seem to some at first. Often young and enthusiastic investors forget about the many regulations they must meet, or the technical or environmental conditions they must comply with. Such start-up obstacles are precisely the barriers to entry.

Relevance of barriers to entry

Do barriers to entry really matter that much? First of all, the more such barriers there are, the harder it will be to enter a sector, which will automatically increase its attractiveness in the market and reduce competition. However, if there are few of them or access is completely free, it may mean that competition in such a sector is huge and its attractiveness is no longer so high.

There are constantly situations in which only after putting a lot of capital into a particular investment and spending a huge amount of time does it turn out that the labor force does not have a sufficient level of know how, or even that a company with the same name or product offering already exists in a given market.

Therefore, before starting the process of introducing a new business, it is essential to know the barriers to entry in a given market and to identify them accurately in order to prepare an entry strategy. Later in this article, you will learn what barriers new investors most often face and how they can be successfully overcome.

Typology of barriers to entry

Barriers to market entry depend on many factors and change with the economic situation. However, most often we are able to distinguish six basic types of market barriers. We have listed and described them in the rest of the article, feel free to take a look!

Financial barrier

The financial barrier is one of the oldest and most obvious commercial barriers to market entry. New players may find it difficult to obtain enough funds to invest in their venture. How do you successfully overcome financial barriers to entry? The solution may be, for example, raising capital from investors or using alternative sources of financing, such as crowdfunding, or grant programs for start-ups.

If you're planning to implement an innovative product or service, you may find the report , created by ConQuest Consulting, titled "The Innovative Product or Service" helpful. "How to Commercialize Technological Innovation."

 

Barrier to entry

Barriers to entry, are most often regulations or industry practices that impede entry. Some industries require special permits, concessions, licenses, patents which can be an important source of entry barriers. These requirements are often more stringent for new entrepreneurs than for existing companies, plus they are very time-consuming and quite costly. To overcome this barrier, it may be necessary to obtain the necessary certifications or change the industry to one that is more open to new players.

Technological barrier

A technological barrier is, as the name implies, a lack of certain technical skills or expert knowledge resources needed to enter a particular market. High costs R&D, barriers to acquiring know-how or recruiting skilled workers with the right knowledge is a costly and time-consuming challenge for new businesses. Incumbents, thanks to previously acquired knowledge and experience, have a greater ability to adapt quickly and easier access to new technologies.

Marketing barrier

Nowadays, marketing is synonymous with the word recognition. A marketing barrier, therefore, refers to impediments to entry into a given market related to a lack of brand recognition or a lack of resources to promote a product. This barrier is largely linked to financial constraints, as the costs incurred for advertising and public relations are very high.

New companies may find it difficult to reach customers if their competitors have larger budgets for marketing campaigns. A relatively simple and popular way out of this situation can be the use of the so-called. marketing buzz (whisper marketing), influencer marketing or product promotion on social media. Another reliable way is to create unique value for customers, such as through innovative products or services, better product quality, lower price or faster delivery.

If you want to learn more about marketing strategies, we encourage you to read the article on our website, where we describe in detail, What digital marketing is!

Would you like to plan a marketing strategy, but don't know where to start and what it should include? Fill out the form below! During your free, no-obligation consultation, we will be happy to determine how we can help you!

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    Environmental barriers

    The environment is one of the biggest barriers to entry in a great many markets. Environmental barriers are most often social or political market barriers that involve regulations. High environmental costs, such as emission fees, natural resource use fees or waste disposal fees, can be difficult for new companies to bear, especially when competitors are already enjoying the benefits of economies of scale.

    New companies may also face resistance from residents or community organizations if their operations threaten health or the environment. This can lead to negative reactions and resistance to entering the market. The solution to overcoming environmental barriers may lie in sourcing alternative sources of raw materials and energy, using more efficient technologies and investing in research and development. Companies can also consider partnering with existing companies or organizations to get support in accessing resources and solving environmental problems.

    Competitive market barriers

    This barrier to entry is directly caused by the presence of already existing incumbents (an individual already holding a role, position) With a strong market position, which gives them an advantage over new players, such as greater distribution capabilities, economies of scale, lower production costs, brand recognition and image, favorable access to raw materials, logistics centers in strategic areas or better relations with suppliers.

    The solution may be to launch a new, innovative offering or to focus on a market niche that is not served by existing companies or that is not sufficiently served. In this way, you can avoid direct competition and focus on delivering value to your customers.

    Is it worth overcoming barriers to entry?

    Since there are so many barriers to entry, is it worth starting your own business at all, and are there any chances that this "battle" can be won? There are no easy answers to this question, certainly every future entrepreneur should be aware of their existence and take them into account when creating his company's strategy to analyze whether his business will prove profitable. It should also be noted that the higher the barriers to entry, the less competition, and conversely, the lower the barriers to entry, the stronger the competition. Consequently, high barriers mean high risk, but also greater opportunities for growth and greater profit. No matter what kind of business we are going to do in the future, the decision to start it must be very well thought out and supported by a thorough analysis of potential barriers and how to overcome them.

    If, after reading this article, you are still struggling to identify barriers to entry for your company -. CONTACT US. Together we will determine what factors most threaten your business and advise you on how to overcome them in the most effective way.

    Barbara Piotrowicz

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