PORTER’S FIVE FORCES MODEL 1. Rivalry Among Existing Competitors - (High) • Numerous and equally balanced competitors – As there are already large numbers of competitors in this industry, rivalry for better quality at a cheaper price is quite high. • Shorter Product Life-Cycle – As the technology is growing at a rapid pace, the life cycle of products has become relatively shorter. • High R&D costs – To come up with a better or a substitute product with better added features it requires great deal of investment in research and development which can be very risky because if the product fails then the costs incurred are sunk costs and cannot be recovered. • Imitation of technology – As the concept of reverse engineering has enabled everyone to imitate the technology that the rival company uses, it becomes a difficult task to maintain exclusivity and uniqueness.
Rivalry in the industry can be weak, with few competitors that don't compete very aggressively. Or it can be intense, with many competitors fighting in a cut-throat environment. Factors affecting the intensity of rivalry are: Number of firms more firms will lead to increased competition. Fixed costs with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing market competition. Product differentiation Products that are relatively the same will compete based on price.
That segment is more attractive which has high entry barriers and low exit barriers. Some new firms enter into industry and low performing companies leave the market easily. When both entry and exit barriers are high then profit margin is also high but companies face more risk because poor performance companies stay in and fight it out. When these barriers are low then firms easily enter and exit the industry, profit is low. The worst condition is when entry barriers are low and exit barriers are high then in good times firms enter and it become very difficult to exit in bad times.
Trading companies not only have more negotiation power on the bargaining table but also establish guidelines, which their suppliers must follow. As a result suppliers to this industry do not wield much bargaining power. The buyers of the services rendered by this industry include large multi national corporations that outsource their supply chain management activities as it is outside their core competencies. Some customers are extremely large volume buyers and as a result have a large amount of influence on the price of these services. The cost of switching between traders is small and the process quick, therefore buyers that are price sensitive are very likely to switch to those traders who can supply the same goods for a lower price.
Hence, bargaining power of buyers is high with a negative force since the industry’s competitiveness boosts consumers power wherein many customers are price sensitive and will go for the alternative option. However, there are no switching power amid fast food chains. Thus, key competitors can try to lower buyer power, by recommending a product variety which satisfies the whole demographic population, instead of one particular
Operating an air-express transportation company requires large capital investments, and therefore it can impede the entry of new firms into the industry. The current market is also saturated with established companies. For example, the market leaders, FedEx and UPS already operate in most of the parcel markets (consumers, business, domestic and international). Fedex has even become the synonym to overnight shipping. In addition, most of the big corporate customers can negotiate extremely low rate (slim margin for providers) and they tend to shop around after the contracts are over.
The suppliers bargaining power is generally strong because of the big monopolies and the high importance of purchasing components and operating system, therefore it decreases the profitability of the market players. Threat of substitute goods Substitute goods are different on for different market segments see (4.1) For most of the customers these substitute products cannot satisfy the needs covered by PC computers. The lack of suitable substitutes raises the industry profitability. Complimentary products product market is rapidly growing and therefore it raises the industry profitability. Rivalry among established firms is fierce.
Existing companies are safe from new companies entering the market because barriers to entry to the market are high. For example, if products are heavily promoted and producers have a number of existing successful brands, it will be very costly and difficult for new firms to establish their own new brand in an oligopoly market. Because there are few firms in an oligopoly industry, each firms output is a large share of the market. As a result, each firm's pricing and output decisions have a substantial effect on the profitability of other firms. In addition, when making decisions relating to price or output, each firm has to take into consideration the likely reaction of rival firms.
Most industries today are oligopolies, the possible reasons for this would be that oligopolies in contrast to monopolistic competition would be able to earn abnormal profits in the long run as well as the short run, as shown in the previous section The reason for this is that there are barriers to entry and exit to potential firms. Examples of these barriers would be, high capital costs i.e. start up costs for new firms because the existing firms are already operating in a large market and are well established, they would have created a brand image and would have brand loyalty therefore new firms will find it hard to capture the market. Another barrier would be sunk costs i.e. the costs that are not recoverable if the firm decides to close down, e. g new fi...
Therefore, producers always be a mainstay. Howells. Bain said that “producers often dominate the regulatory process since the activities of regulators are much more important to each of the relatively small number of producers than to each of the much large number of the relatively small number of producers than to each of the much large number of consumers.”(Howells.Bain, p365, 2007) Agency would rather to pay attention to the profit from the producers. For customer, that lacks fairness. In especial for non-professional customer who has not experience in investment, so they deposit their money into the