According to Michael Porter (1980), there are five forces that drive industry co
ID: 457913 • Letter: A
Question
According to Michael Porter (1980), there are five forces that drive industry competition: direct competitors or rivals; barriers to entry; substitute products or services; customer power; and supplier power. These forces will determine whether or not your small business will be profitable and sustainable. In the Discussion Board "Unit 2: Market Analysis", discuss the following forces of competition, which relate to your particular business or industry.
Competitors - Identify a small business that sells the same product or service as your company. Explain why you consider the company is your competitor or rival. Define a strategy on how you think you can remain competitive or eliminate the company's competition.
Barriers to entry - Are there certain factors, which might keep potential small businesses out of your industry. Discuss ways to keep new competitors from entering your industry.
Substitute products/services - Is there another product or service, which functions the same as your product or service or could be used as a substitute? If the value of your product or services begins to decline, your business could become less profitable. Discuss ways your company can do to preserve and uphold the value of your company' s product or service.
Customer power - What is the customer demand for your company's product or service? Are there options for customers to obtain your company's product or services elsewhere for a better price or selection? Define ways your company can influence its customers buying decisions.
Supplier power - Does your company have to rely on one particular supplier to produce its product/service or does it buy it materials from several suppliers? A single supplier could increase its prices or limit supply and thus affect your company's profitability. Identify ways in which you can reduce the power of your suppliers.
Explanation / Answer
Porter’s five forces analysis to Food & Beverages (dairy) Industry
Competitors – my company deals in dairy products and fresh packaged juices (with a shelf life of 2 days). My company’s products are more suitable for retail customers, who want a certain standard of quality for self consumption on a daily basis. My competitors are the companies who cater to the same segment of customers, sell identical products such as milk, curd, cheese, cottage cheese, butter, ghee, chaach, butter milk. The price points of the products are almost at par. However, I am able to survive and beat the competition because of being a local manufacturer. I have a strong brand presence in this geographical market, where I operate my business. My strategy is of differentiation, as I have a specific set of niche customers who appreciate the consistent standard of quality that my company provides.
Barriers to entry – the barrier to entry is scale of operations, because the margins are small, so to remain profitable, one needs large volumes. The other barriers are distribution capability and local presence. Also my company has created a good will in the market by selling good quality products at reasonable prices over a period of time, so any new entrant need to get the optimal marketing mix right, and need to invest considerable amount of time and efforts to create the goodwill and brand presence. These barriers make it difficult for new entrants to make any significant inroads into the market
Substitute products/services – There are no cheap substitutes to the products that my company deal in. fresh packaged juices that my company produces is a new and innovative product, which is very difficult for any new player to replicate, as the formulation and process that my company uses, is a trade secret. Also the quality and price point of my dairy products are difficult to match by other players, making it difficult for substitute products to make any significant impact on my business.
Customer power – customers want better products at cheap prices. But when it comes to food items, they are more inclined towards quality, rather than price. My company’s products are priced in between big national brands and local unbranded products. Customers understand that my brand stands for certain quality standards and the price is low, because I have less operating overheads. So they perceive my brand at par with big national brands. And products are already more affordable, Also there are no other player, with local presence, who provides branded dairy products of this quality. So there’s no significant impact of on customer power in further bringing down the prices of my products.
Supplier power – my company source milk, fruits and other raw materials from local farmers, through farmer cooperatives. These farmers are happy with the consistent business that I provide them, however some of them also sell unbranded milk products by themselves at small scale. So in times of peak demand, there’s a constraint on the supply, which helps suppliers to negotiate better prices and my business is affected by supplier power at those times.