Application of Porter’s Five Forces Model yields some very interesting discoveries when applied to the pulp and paper industries. The model, as discussed in our textbook, attempts to evaluate how well an industry can generate profits by examination of intensity of rivalry, treat of new entrants into the industry, threat of substitutes, bargaining power of buyers and bargaining power of suppliers (Parnell, 2014). While I know from personal experience that it is not easy to be profitable in the paper business, applying the model does provide some insight into the reasons why those difficulties exist. Examination of the eight factors of rivalry intensity shows a number of competitors with many of them producing very similar product lines. …show more content…
Newsprint used to be International Paper’s main product, but it is no longer produced by that company since it was so unprofitable (‘A Short History of”, 1998). Very few companies manufacture newsprint anymore due to the fact that most people get their news via radio, television, and various other internet sources. Emails and social media posts have all but replaced Christmas, birthday, and get-well cards. Magazines are read online, Christmas catalogs have been replaced by online sales, and the vast majority of our junk mail has been transformed into spam in our email boxes. Corrugated and cardboard boxes have been replaced by plastic “clamshells”. Even our government has gotten into the act of reducing paper by forcing the use of electronic health records in the 2010 Affordable Care Act (“Key Features of the”, 2015). Because paper products are used in so many different applications, there is virtually no end to the substitute products which are …show more content…
Dell, Tyson, Samsung, and watermelon farms purchase boxes to ship their products to stores and occasionally directly to consumers. Grocery stores and fast food restaurants purchase paper sacks to hold the customer’s goods. McDonalds and Starbucks acquire the coffee cups directly from the manufacturer. Cutsize paper is purchased and distributers, like Wal-Mart, Staples, and Office Max, break the pallets and sale individual reams and cartons to consumers. The vast majority of the buyers of paper are major customers, and they often prefer generic products; therefore purchasers have tremendous bargaining power. Manufacturers attempted to raise prices in the mid 2000’s, but they met with strong opposition and the efforts failed (“Paper business in mature”’, 2013). Even when manufacturers shifted modes and found methods to produce paper more cheaply by increasing productivity as much as 30%; buyers demanded, and received lower prices from the
As soon as a competitor changes their plans or a new competition comes along customers may not want to change their mind about going to a different location (Belonwu). Having a “rivalry” may help concentrate on what needs to be improved in a business depending on what their weaknesses and strengths are. Having competition may be wonderful for the consumers because they have different choices to select what kind of brand of clothing, shoes, or a variety of tools, food and etc. Being able to choose a certain type of customer, may bring in a flow of customers that they’re are trying to reach out for; such as Walmart, they chose to sell products that are family oriented while having different areas in the store pertaining to men’s, women’s, and children’s necessities. If a customer is loyal and you all of a sudden are raising prices on items where they can get goods at a lower price elsewhere, that is causing a business to be disloyal due to competition.
orter’s five forces In determining the competitive intensity and attractiveness of the market, Porter’s five forces is a framework that would help analyze the manufacturing industry of Lincoln Electric and observe the external and internal environmental factors that influence business strategy development for companies within the industry. The five forces are assumed to determine competitive power in a business situation in which these five forces are Supplier Power, Bargaining Power, Competitive Rivalry, Threat of Substitution, and Threat of New Entry. These industries possess characteristics that protect the high profitability of firms, with that said, the threat of entrants within this market is relatively low. This makes entering the market difficult for new startup companies due to the high levels of entry barriers.
Other competitive activities included sales promotion, advertising, and product differentiation. Larger companies have a much greater financial ability to be able to invest more into advertising than a new business starting out would be able to. Shelf space and competitive pricing were two major issues that affected sales. Because they are already recognizable brands, they can afford to purchase the best shelf space. Consumers will see their products before noticing other, not so well known products.
Competitive rivalry examines how intense the competition currently is in the marketplace, which is determined by the number of existing competitors and what each is capable of doing. (Arline, 2015).
With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces.
Rivalry among established firms is fierce. There are several factors that illustrate this: established market players (6.1). The product is highly standardized and the switching costs of the customers are low. Players are aggressive (6.2)
These forces include the intensity of rivalry from traditional competitors, threat of new market entrants, threat of substitute products and services, bargaining power of customers and bargaining power of suppliers (Laudon & Laudon, 2007). See diagram below for more information. Traditional Competitors (competitive rivalry). McDonalds traditional competitors include many of the other fast food outlets across the country, i.e. Burger King, Taco Bell, KFC, Wendy’s. It has been shown by Professor Michael Waterson (2004) that the presence of a Burger King, for example, will increase the likelihood that McDonalds will open nearby.
The Porter five forces model (see Appendix 1) as an external analysis tool was established by Michael E. Porter and firstly announced in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980 . The main idea of the Porter five forces concept is that the attractiveness of a market depends on the characteristic of the five competitive forces that have an impact on a company (see Appendix 2).
1) As companies trying to sell consumers stuff, they are not competing with them, only other companies,
Degree of Rivalry - Very High to Intense – Multiple competitors, high strategic stakes, innovation often easily imitated, and low switching costs for consumers
3. Analyze BP using the five forces of competition model to determine the industries current attractiveness in terms of profits potential
The advancement in technology across the world is a major cause of the changes in the workplace. For instance, the advancements in computers are astounding. Mainframe computers have given way to personal computers, then laptop computers, and now hand-held tablets. Findings of a study by IDC, a market research company, showed that by 2015 more people will be connecting to the Internet using tablets, smart phones, and other mobile gadgets compared to those who use the Internet through their desktop computers (Schroeder). Cell phones have also seen a revolution by becoming faster, more efficient and more feature-rich. It is even possible to check email on the way to work using a handheld device. A Nielson fact sheet outlining the usage of various devices in America shows that “there are 223 million cell phone users over the age of 13, and 25% of the mobile devices sold during Q3 of 2009 were smart phones. That is estimated to go up to between 40-50% during 2010” (Heimbuch). Individuals can text, status update, tweet, or reach other seamlessly by mobile devices that can fit in their pockets. Even the printed word may become obsolete according to Aaron Bradley, as outlined in his online article called “A Modest Proposal for Newspapers in the 21st Century.” In his article, he discusses how the printing of newspapers is be...
The rivalry aspect of Porter’s Five Forces that influence’s the grocery industry finds that there is a high degree of competition for consumer’s business among the dominate retailers as well as those companies trying to take any share of the market they can get. The large retailers engage in intense competition among each other as well as other stores that are competing for sales. Price wars drive down the profit margins for individual items and new and improved store design to bring in customers increases fixed cost. Improved distribution lines affect distribution and storage cost is competitive adjustments that the major retailers use to stave off the increasing competition. The last area of rivalry that the major companies use is the relationships they have with their suppliers to sign exclusive deals or lower cost than those prices paid by competing firms. As more retailers such as Wal-Mart and Target add groceries to their sales floor the competition increases as well as the stores that offer individual grocery items in their stores such as Dollar General, Walgreens and CVS. The grocery rival...
For assessing the industry profitability, Porter 5 Forces analysis tools were used to analyze one organization evaluation. In this case, the technique were used to analyze 7-Eleven Convenience Store specifically in Malaysia. Porter 5 Forces consists of 5 important area which is Threat of New Entrants, Bargaining Power of customers, Threat of substitute Products and services, Bargaining Power of suppliers, and competitive rivalry within the industry. Theoretically, the more powerful these forces in an industry, the lower its profit potential. The strength of each force differs by industry and changes over time. The competitive advantage that 7-Eleven has using these five forces is it has raised the barrier of entry for other competitors to enter the convenience store market as new competitors will require a huge capital investment in order to implement the information technology in their business in order to be competitive. Also, hypothetically being the first in the market, 7-Eleven could have made contracts with the Malaysia government to not allow other 24-hour convenience stores in the market for a certain time period, such as Astro had done, thus having a monopoly market in the beginning of their operations which will allow them to target a bigger market share.
1. Intensity of rivalry among competitors- there is intense rivalry among the automobile industry. There is only a handful of companies in the world, and it is war to survive.