SECTION B – Porter’s Five Forces Industry Analysis (include references) on Nonal
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Question
SECTION B – Porter’s Five Forces Industry Analysis (include references) on Nonalcoholic Beverages
1 Supplier Power – Strength of Force
How concentrated are the suppliers? How important are the suppliers’ product to the industry? How differentiated are the inputs? Are switching costs high or low? Are substitutes available? Is the threat of vertical integration high?
2 Buyer Power – Strength of Force How much power do the customers have in the industry? How differentiated are the products in the industry? Are customer switching costs high or low? How price and demand sensitive is the industry?
3 Threat of Substitutes – Strength of Force Are substitute products available and does the supply and pricing of those products impact the industry?
4 Threat of New Entrants – Strength of Force Are entry barriers to the industry high or low? Why? How important is branding to the industry?
5 Rivalry – Strength of Force How high are exit barriers? How concentrated is the industry? How fast is the industry growth? How differentiated are the industry products?
6 Summarize the top 2-3 forces – What does this analysis tell you about the attractiveness of the industry?
Explanation / Answer
1 Supplier Power – Strength of Force
Suppliers concentration signifies the risk level that the company has taken. More the concentration of the supplier, lesser would be the customers and hence might be a big loss to the Company. But that doesn’t decrease the power of the supplier. They are as important for the business as their products are. As they are the one who are going to be the mediator for the company's product. Their quality of service and making available your products at right price to right consumer at right time is as crucial as survival. The company may have a gain by switching or making the diversification by taking the help of the substitutes available at better cost but that involved the risk of dependency. Threat of any substitutes increase more with changing of technology and low switching cost for the buyers. Vertical integration should be for the high strategic activities wherein the company faces the high threat of being exploited by the supplier.
2 Buyer Power –
The power of the customer is at high stake as they are the influencer in the market. Their switching from one substitute to another is quite high. They can induce the industry for quality of the products at lower price and hence increase the competition in the market. Differentiation of the products meant for making your products better than others available in the market. Every business tries to achieve the product differentiation by innovation and quality thereby attaining the Goodwill. Buyers switching cost is low as many substitutes are available in the market wherein the buyers think they hardly differ in specification and quality to be deserving for paying more price. Demand and price is the economic model. If the demand increases, supply remain constant and this induce the price hike. Whereas if the demand decreases, supply remain constant and price decreases.
3 Threat of Substitutes
Threat of substitute is more when the price of the substitute available in the market is reasonable and attractive to the consumer which induce the lower switching cost as well as quality and features are almost same. Continue advancement in technologies, competition in the market and availability of many substitutes have increased the threat of substitutes.
4 Threat of New Entrants –
New entrants make the industry more competitive and decreases the profit earning ability of the existing industry players. They are protected by the barriers to entry. Their threat to entry is strong and barriers to entry is low if the existing members doesn’t fight for their market share and put strong stagnant towards their entry. When the potential to earn, high profit is obvious. Strong competitors who have gained the market share and whose products customers recognise and differentiate from the other products won't be affected by new entrants because of their brand recognition and market goodwill.
5 Rivalry –
Exit barriers are depends on many factors such as Capital requirement of the industry, Government regulations and norms, Brand identity, availability of distribution channels, target market and consumers, product differentiation. Once the brand gain customers attraction, they will be able to earn profits. Gaining market advantage could be done by advertising and extensive brand promotion. Industry growth depends on the line of products and services.
6 Summarize the top 2-3 forces – What does this analysis tell you about the attractiveness of the industry?
If we summarize the forces for Non-alcoholic beverages, competition is quite high, barriers to entry is quite low. The only thing a business can survive is brand recognition and quality enhancement. The taste matters a lot. Now – a – days many beverages are available, but customers preference is more towards the healthy drinks and with no preservatives. Therefore, innovation in natural drinks would add some differentiation and brand attractiveness. Government acts and regulations are there which is to be clear. Competition would be high. Buyers switching cost is low and supplier's concentration is high.
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