Section 2B:
focuses on Porter’s 5 forces and the SWOT analysis of your selected business. Essentially section 2B focuses on external forces that can affect your business. (Amy’s Fashion Boutique )
You will be required to apply Porter’s 5 forces by identifying in detail the threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and competitive rivalry on your business, and providing relevant examples. Furthermore, you must also identify in detail the strategies to reduce the impact of the 5 forces, alongside examples that are logical.
Lastly, a SWOT analysis must be conducted with examples that are relevant and are connected to specific business activities.
Porters five forces – Threat of new entrants
How easyor how difficult is it for a new competitor to enter your industry?
One key factor that determines this is “economies of scale“. Ok, let us then look at what “economies of scale” means.
Economies of Scale: How many products do you need to sell to break-even. Does your company have a High Economy of scale that is difficult for a new entrant to match?
Other factors here of importance are:
Capital requirement of entry: Does your industry require a large amount of capital to enter the market?
Access to distribution channels: Does your company have a large number of retail outlets?
Government action and Legislation: Does your government protect your industry through patent protection?
Experience: Does your company have long experience that is difficult to match?
Porters five forces – Threat of substitutes
Ok, now let us look understand the next force – “threat of substitutes“.
Think about this scenario, if you do not find your brand of batteries in your local supermarket on a particular day, you would quite easily buy batteries of another brand (assume you need them for your torch). But would this be that easy if your preferred massage therapist decides to leave?
So, the moot question here is “how easily can the product or service you provide be replaced“?. This is indeed the key to understanding this particular force. Some important aspects to consider here:
>Product with similar functions limit the prices firms can charge
>Keys to evaluate substitute products
> Products with improving price/performance trade- offs relative to present industry products
Porters five forces – Bargaining power of buyers
Let us move on to the next force. Aha, the buyers refer to “YOU“. Now that you are happy that the focus is on you – How much power do you as a consumer have?.
Well, consider this scenario – If you do not like the service provided by your local coffee shop barista, you can always go to the one of the other local coffee shops, but if your grandfather has a specialist medical problem which requires a particular type of doctor, you do not have much of a choice in terms of changing the doctor. Right?
Buyer Power is high when:
Industry has a large number of small operators.
There are many sources of supply due to an undifferentiated product.
Porters five forces – Bargaining power of suppliers
Ok, let us now move to “suppliers“.
Suppliers provide raw materials/products to businesses. Think of your local phone shop – they probably stock Apple / Samsung phones. These companies are suppliers for your local phone shop.
Supplier power is high when:
→Cost of changing suppliers is high – suppliers may produce highly specialized products.
→Supplier Brand is powerful – E.g. a retailer requires a particular brand.
Porters five forces – Competitive rivalry
When does “competitive rivalry” happen?
Well, it happens when organizations with similar products or services target the same customer group or groups. Therefore if there are more organisations, this will be higher. Let us look at some other factors that decide the intensity of “competitive rivalry”
Balance of Competitors: More competitive if same size of companies. Less competitive if dominant companies and smaller companies.
Market Growth Rates: Effect of the Product Lifecycle. Low market growth at product maturity stage means more competition
Fixed Costs: High fixed costs means lower competition.
Differentiation: Low differentiation means more competition
SWOT analysis
A study taken by a business to identify strengths, weaknesses, opportunities and threats.
It is also used to assist business in making strategic decisions
My Business (Amy’s Fashion Boutique)
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