The 5 Forces Module is :
1. Threat of new entry
A Company will interested to an industry if the industry will give a high profit to its owner. In macro, with there's a new entry in an industry, it will cause a high competition that in the end causes a loss profit in all company. There's some internal factor that affect easy or difficult obstacle to enter an industry.
a. Economic Scaleb. Product Differentiation
c. Asset Requirement
d. Switching Cost
e. Access to Distribution Line
f. Goverment Policy
g. Technology Evolution
2. Threat of Subtitutes
The existence of products outside of the realm of the common product boundaries increases the prospensity of customers to switch to alternatives. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke's expense. Another example is the substitute of a landline phone with a cellular phone.
Potential factors:
Potential factors:
⦁ Buyer propensity to substitute
⦁ Relative price performance of substitute
⦁ Buyer switching costs
⦁ Perceived level of product differentiation
⦁ Number of substitute products available in the market
⦁ Ease of substitution
⦁ Substandard product
⦁ Quality depreciation
⦁ Availability of close substitute
3. Bargaining power of buyers
The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. The buyer power is high if the buyer has many alternatives. The buyer power is low if they act independently e.g. If a large number of customers will act with each other and ask to make prices low the company will have no other choice because of large number of customers pressure.
Potential factors:
⦁ Buyer concentration to firm concentration ratio
⦁ Degree of dependency upon existing channels of distribution
⦁ Bargaining leverage, particularly in industries with high fixed costs
⦁ Buyer switching costs relative to firm switching costs
⦁ Buyer information availability
⦁ Force down prices
⦁ Availability of existing substitute products
⦁ Buyer price sensitivity
⦁ Differential advantage (uniqueness) of industry products
⦁ RFM (customer value) Analysis
⦁ The total amount of trading
4. Bargaining Power of Suppliers
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
Potential factors are:
⦁ Supplier switching costs relative to firm switching costs
⦁ Degree of differentiation of inputs
⦁ Impact of inputs on cost or differentiation
⦁ Presence of substitute inputs
⦁ Strength of distribution channel
⦁ Supplier concentration to firm concentration ratio
⦁ Employee solidarity
⦁ Supplier competition: the ability to forward vertically integrate and cut out the buyer.
5. Competitive Rivalry
For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.
Potential factors:
⦁ Sustainable competitive advantage through innovation
⦁ Competition between online and offline companies
⦁ Level of advertising expense
⦁ Powerful competitive strategy
⦁ Firm concentration ratio
⦁ Degree of transparency
PORTER GENERIC STRATEGIES
This strategy involves the firm winning market share by appealing to cost-conscious or price-sensitive customers. This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio (price compared to what customers receive). To succeed at offering the lowest price while still achieving profitability and a high return on investment, the firm must be able to operate at a lower cost than its rivals. There are three main ways to achieve this.
The first approach is achieving a high asset utilization. In service industries, this may mean for example a restaurant that turns tables around very quickly, or an airline that turns around flights very fast. In manufacturing, it will involve production of high volumes of output. These approaches mean fixed costs are spread over a larger number of units of the product or service, resulting in a lower unit cost, i.e. the firm hopes to take advantage of economies of scale and experience curve effects. For industrial firms, mass production becomes both a strategy and an end in itself. Higher levels of output both require and result in high market share, and create an entry barrier to potential competitors, who may be unable to achieve the scale necessary to match the firms low costs and prices.
The second dimension is achieving low direct and indirect operating costs. This is achieved by offering high volumes of standardized products, offering basic no-frills products and limiting customization and personalization of service. Production costs are kept low by using fewer components, using standard components, and limiting the number of models produced to ensure larger production runs. Overheads are kept low by paying low wages, locating premises in low rent areas, establishing a cost-conscious culture, etc. Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business. This will include outsourcing, controlling production costs, increasing asset capacity utilization, and minimizing other costs including distribution, R&D and advertising. The associated distribution strategy is to obtain the most extensive distribution possible. Promotional strategy often involves trying to make a virtue out of low cost product features.
The third dimension is control over the value chain encompassing all functional groups (finance, supply/procurement, marketing, inventory, information technology etc..) to ensure low costs. For supply/procurement chain this could be achieved by bulk buying to enjoy quantity discounts, squeezing suppliers on price, instituting competitive bidding for contracts, working with vendors to keep inventories low using methods such as Just-in-Time purchasing or Vendor-Managed Inventory. Wal-Mart is famous for squeezing its suppliers to ensure low prices for its goods. Other procurement advantages could come from preferential access to raw materials, or backward integration. Keep in mind that if you are in control of all functional groups this is suitable for cost leadership; if you are only in control of one functional group this is differentiation. For example Dell Computer initially achieved market share by keeping inventories low and only building computers to order via applying Differentiation strategies in supply/procurement chain. This will be clarified in other sections.
Cost leadership strategies are only viable for large firms with the opportunity to enjoy economies of scale and large production volumes and big market share. Small businesses can be cost focus not cost leaders if they enjoy any advantages conducive to low costs. For example, a local restaurant in a low rent location can attract price-sensitive customers if it offers a limited menu, rapid table turnover and employs staff on minimum wage. Innovation of products or processes may also enable a startup or small company to offer a cheaper product or service where incumbents' costs and prices have become too high. An example is the success of low-cost budget airlines who despite having fewer planes than the major airlines, were able to achieve market share growth by offering cheap, no-frills services at prices much cheaper than those of the larger incumbents. At the beginning for low-cost budget airlines choose acting in cost focus strategies but later when the market grow, big airlines started to offer same low-cost attributes, cost focus became cost leadership!
A cost leadership strategy may have the disadvantage of lower customer loyalty, as price-sensitive customers will switch once a lower-priced substitute is available. A reputation as a cost leader may also result in a reputation for low quality, which may make it difficult for a firm to rebrand itself or its products if it chooses to shift to a differentiation strategy in future.
Differentiation Strategy
Differentiate the products/services in some way in order to compete successfully. Examples of the successful use of a differentiation strategy are Hero, Asian Paints, HUL, Nike athletic shoes (image and brand mark), BMW Group Automobiles, Perstorp BioProducts, Apple Computer (product's design), Mercedes-Benz automobiles.
A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy. These could include patents or other Intellectual Property (IP), unique technical expertise (e.g. Apple's design skills or Pixar's animation prowess), talented personnel (e.g. a sports team's star players or a brokerage firm's star traders), or innovative processes. Successful differentiation is displayed when a company accomplishes either a premium price for the product or service, increased revenue per unit, or the consumers' loyalty to purchase the company's product or service (brand loyalty). Differentiation drives profitability when the added price of the product outweighs the added expense to acquire the product or service but is ineffective when its uniqueness is easily replicated by its competitors. Successful brand management also results in perceived uniqueness even when the physical product is the same as competitors. This way, Chiquita was able to brand bananas, Starbucks could brand coffee, and Nike could brand sneakers. Fashion brands rely heavily on this form of image differentiation.
Differentiation strategy is not suitable for small companies. It is more appropriate for big companies. To apply differentiation with attributes throughout predominant intensity in any one or several of the functional groups (finance, purchase, marketing, inventory etc..). This point is critical. For example GE uses finance function to make a difference. You may do so in isolation of other strategies or in conjunction with focus strategies (requires more initial investment). It provides great advantage to use differentiation strategy (for big companies) in conjunction with focus cost strategies or focus differentiation strategies. Case for Coca Cola and Royal Crown beverages is good sample for this.
Focus strategies
This dimension is not a separate strategy for big companies due to small market conditions. Big companies which chose applying differentiation strategies may also choose to apply in conjunction with focus strategies (either cost or differentiation). On the other hand, this is definitely an appropriate strategy for small companies especially for those wanting to avoid competition with big ones.
In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or niche strategy). These should be distinct groups with specialised needs. The choice of offering low prices or differentiated products/services should depend on the needs of the selected segment and the resources and capabilities of the firm. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment.
Case :
Cuan.co
SHORT HISTORY
Est. 2011, Cuan.co is selling some kind of merchandise, Ex.: Cap, Hat, Braccellete. From the beginning cuan.co have a vision and mission to be the best and largest accessories store in Indonesia nor the world.
Nowadays after almost 5 years opening, Cuan.co want to achieve the bigger dream to be the best and largest accessory store in the world.
⦁ Threat of New Entrants
Threat of new entrants for our company is online shop that sell many merchandise such as : hat, cap, beanie, bracellete and any other accessories
To deal with the new entrants our company do :
⦁ Using E-bussiness to enlarge the market
⦁ Keep in touch with customer, give some feedback
⦁ Keep the best quality accessories
⦁ Threat of Product Subtitutes
To intend deal with product subtitues with competitor, Cuan.co have unique strategies to keep customer in touch. So in order to keep its customer, Cuan.co will make sure that some of their product is two times cheaper than in other seller / market. And for increasing the comfort for customer if they want to buy the product, Cuan.co give an Delivery Order service in radius that already determined. They also give end month discount.
But it doesn't mean that Cuan.co have product subtitues like Sixpanel cap, snapback, beanie. But as we mentioned above we still can keep customer in touch in that way.
⦁ Bargaining Power Of Buyers
In order to face the power of buyer with customer, Cuan.co make a strategies to use a goodie bag as a wrapper with attractive design. Beside it Cuan.co also give a bonus offer like buy 1 get 1 free, for example buyers buy a cap and get one cap free for same type and price.
⦁ Bargaining Power of Suppliers
About collaboration beetwen Cuan.co with the supplier, they collaborate with constant supplier that can supply sponge, fabric jeans, polyester, paper, goodie bag, plastic, and many other that we need.
⦁ Competitive Rivalry
In this era, company that sell some merchandise like hat, cap or bracelet is many. Just like Nike, Quicksilver, Reebok, Puma and many other. That we can say they are longer in this industry and have a good opportunity to attract customer because they also selling some shoe or shirt.
Generic Strategy that CuanCompany used :
1. Cost Leadership
Cuan.co have a simple method to determine the price for some merchandise, it is the method we use to reach more profit
2. Differentiation
Cuan.co also selling some accessories like necklace, earings and rings.
3. Focus Strategies
3. Focus Strategies
The management in Cuan.co :
⦁ Using a E-commerce well, use a phone based application for simply for everyone. Support for Andriod and iOS even for Windows phone.
⦁ Use a simple catalog that can be accesed from phone, tablets, or computer. Customer can direct order from that catalog
⦁ The payment use Cuan Credits to get more bonus and got cheaper price, but customer also pay with banks transfer or credit card.
⦁ Quality control for the materials from vendors is checked everyday.
⦁ Good security system in Cuan.co application and in offline store.
