Book: Contemporary strategy analysis With reference to Strategy Capsule 3.1, use
ID: 468645 • Letter: B
Question
Book: Contemporary strategy analysis
With reference to Strategy Capsule 3.1, use the five forces framework to explain why profitability has been so high in the US market for smokeless tobacco. Do you think this profitability is sustainable? Why? or Why not?
HP, Canon, Epson, and other manufacturers of inkjet printers make most of their profits from their ink cartridges. Why are cartridges more profitable than printers?
sing a high-profit industry and a low profit industry, use the five forces framework to explain why profitability has been high in one industry and low in the other:
High profit industy - Tobacco
Low profit industry - Telecommunications
For the high profit and low profit industry, it is possible to analyze each of all five forces of competition. However, to speed up the analysis it is best to concentrate on those forces of competition that are critically important in the industry under consideration.
Explanation / Answer
The five force frameworks includes:
1. When considering the tobacco industry the bargaining power of customer is very high. Since tobacco can be harmful to the health of users the preferences for smokeless tobacco increases which provide the product competitive advantage and profit. The Threat of new entrants is huge since the smoke-free tobacco is yielding more profit for this industry. The profitability of this product cannot be considered as sustainable because the threat of substitute product is very high. The awareness of the customers about the harmful effects of tobacco can decrease the profit level of this product.
2. Printers are one-time product and the customers will reuse the cartridges frequently. New innovations can be brought in the cartridges so that the customer satisfaction can be reached easily. Hence the cartridge business can be considered as more profitable that printers.
3.
High-profit industry - Tobacco
The profit is high because the competition in this industry is less when compared to the telecommunication industry. Here new innovations cannot be brought by the new entrants so that the consumers would get attracted. The users will be regular and the customers expectations will also be less. These all contribute to the high profitability to the industry.
Low-profit industry - Telecommunications
Here the competitive rivalry will be very high. The bargaining power of customers, threat of new entrants will also be high. This can reduce the profitability of the industry because for achieving the competitive advantage the service providers will have to provide the high-tech service at lower costs.