FORCES SHAPING COMPETITION

1.THREATS OF ENTRY

If the industry is profitable, it will attract many players. New entrants bring new capacity and sustainable resources and are desirable of gaining market share.

Barriers

  1. Economies of scale
  2. Product differentiation
  3. Capital requirements
  4. Cost disadvantages, Independent of size
  5. Access to distribution channels
  6. Government Policies

2.Bargaining power of buyers

  • The exert influences over organizations to shape their prices, quality, services offers, distribution channels, etc.
  • large volume buyers are potent forces to bargain with produces for favorable terms.
  • When the products are undifferentiated buyers find alternative suppliers and pressurize the producers.
  • IF the buyer buying the components represents significant proportion, they are likely to buy it at a favorable price.
  • If buyers earn low profit, they will be price sensitive
  • If buyers pose a problem of backward integration, they will dominate the industry

3.Bargaining power of the suppliers

  • suppliers can also exert bargaining power on participants by raising price of goods and services.
  • If suppliers group is more concentrated than the industry it sells to, its bargaining power is better.
  • If the product of suppliers group is unique or differentiated, it may exert great powers.
  • If suppliers group has built in switching cost, it has considerable bargaining power.
  • If suppliers group supplies a product which does not have any substitutes, it enjoys bargaining power.
  • If suppliers group posses a threat of forward integration it has considerable bargaining power.

4.Substitute products

  • The amount of competition depends upon the substitution-ability of products of the industry.
  • Products that are subject to improving their price-performance trade off with the industry product pose significant problem to the industry concerned.
  • If the product is being produced by an industry earning high profit, threat for substitute product is high.

5.Rivalry for Position

  • Rivalry among the existing competitors is for increasing the market share at the cost of competitor.
  • All of them try to increase their sales and capture high market share.
  • Usually industry growth is slower compared to total rate of growth in product supply offered by ┬ánumerous competitors.
  • As the product may lack differentiation, buyers are likely to switch over from one brand to the other based on price performance relationship.
  • In case of perishable products, the rivalry is all the more intense to avoid product obsolesce.
  • When exit barriers are high because of investment locked up, the companies have to keep their operations in spite of losses. To reduce losses, the organizations may go in for intense marketing.
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