Porter Industry Analysis

Porter Industry Analysis

Introduction

Companies and businesses continue to live and operate with an informal impression of their competitors, gathering information that is not analyzed. This poses a great threat to the business since a competitor in the industry undermines a company’s profitability. A competitive analysis is required in order to understand the competitors and come up with better ways of handling customers. Porter developed a framework that analyses the competition within the business development and industry. This framework derives its information on five forces that ensure attractiveness in the market thus ensuring high competition. These forces are close to the business and affect its profitability and sustainability of the business. This paper uses Porter’s five-force industry analysis model to analyze the Mother Bear’s Pizza business. The analysis is used to determine the sustainability and profitability of the business (Arons & Waalewijn, 1999).

Porter Industry Analysis

Competitive Strategy of the Business

A competitive analysis is an important corporate part of the business. The competitive strategy determines the business competitors’ weaknesses and strengths within the market. Mother Bear’s Pizza is located on the Indiana University Bloomington campus and is widely known for its delicious pizza (Mother Bears Pizza, 2014). Mother Bear’s Pizza faces competition from other joints that serve Pizza in the town. The competitive business strategy will help the company offer more pizzas and gain a competitive advantage. The competitive business strategy focuses on the threat of the bargaining power of suppliers, the industry rivalry, and the bargaining power of buyers, the threat of substitutes, and the threat of entry into the industry or business. The competitive strategy of Mother Bear’s pizza business focuses on these factors, and the analysis indicates the profitability and sustainability of the enterprise in competition.

Bargaining Power of Customers

The buyers determine the competitive advantages of businesses. This represents the capability of customers or the buyers to exert pressure to the business, and this affects their sensitivity to changes in the prices of the products. The customer bargaining power is also referred to as a market of output. BIP business should take measures in order to control the bargaining power of their customers. The buyers possess this ability to minimize the prices of products and increase the quality of the same commodity at the same cost, and this, therefore, reduces the profitability and sustainability of the business. The bargaining power of the MBP customers is since they are not in large numbers. The business has not expanded so much and hence the customers are tied into using the supplier’s products. The company receives large volume orders since it’s in a specific location, hence stronger bargaining power. This affects the profitability of the Mother Bear’s Pizza business since the customers can find inexpensive and easy switch of suppliers.

Threat of Substitutes for Business

            Substitute products meet the customer needs the same way as another product. The production of the substitutes is done in a different industry. The existence of another outside the business that satisfies the customers provides cheap alternatives for the customers to switch and thus reducing the profitability of the business (Arons & Waalewijn, 1999). In the case of the Mother Bear’s Pizza business, the presence of a substitute will harm the business as the customers will find it easy to shift. If the price performance of the substitute is attractive and the quality is high, this poses a peril to the business, as it will lose the profits due to the imposed threat by the substitutes. If the cost of changing is low, customers are also likely to shift. The business will have to offer high-quality products with relative prices compared to the substitutes in order to secure the sustainability of the business.

Bargaining Power of Suppliers

This represents an important force in the competitive analysis of business. All industries and businesses need raw materials in order to carry out production. The raw materials include inputs, labor, and other components. This requires a strong relationship between the buyer and the seller. If the suppliers are fewer, they tend to wield significant power to the business and industry. When the suppliers attain the bargaining power, they exert pressure on the business, as they will charge high process for the raw materials and components, thus increasing the prices of the products (Porter’s Five Forces Model, 2014). They will also control the delivery timelines of the companies thus inconveniencing the customers and the business resulting in lower sales and hence e low profits. The MBP business experiences strong bargaining power of the suppliers due to the competition from other companies selling pizza in the Bloomington town. The business should can find substitute raw materials in order to lower the transaction power of the suppliers and maintain the sustainability and profitability.

Threat of New Entrants

The force of new entrants in the business determines how it is easy or hard to enter into the industry. If the industry continues to experience more profits and has few barriers to entry, more companies will enter the industry in search of profits. This will result to more competition in the industry, hence the profits of the business will start to fall affecting the sustainability of the business. In the case of MBP business, the entrance of a new business in the industry will mean that the company will experience high competition and the profits will drop since some of the customers will shift to other alternatives. The business requires a low amount of capital to start hence more entrants that are new are bound to join the industry. The MBP business should ensure that the switching cost to their business from other competitors is low in order to earn a competitive advantage. The business should also establish a customer loyalty program in order to stop the customers from shifting.

Rivalry

When the there are many competitors in the industry, they engage in stiff competition in order to achieve and attain a market share (Porter’s Five Forces Model, 2014). Companies rival each other, especially when the exit barriers are high, when the industry growth is slow, or even when the competitors are of equal size. The MBP business will have to compete aggressively since the pizza market has many competitors in order to maintain its market share. The business will have to engage in price competition in order to win a large market share ensuring the sustainability and profitability.

Conclusion

The availability of critical information on the important forces that affect the profitability of a business is crucial. The competitive analysis of business helps it to gain competitive advantage by exerting power on its capabilities and weaknesses of their competitors by overcoming their strengths. By understanding the factors that determine the competitiveness of the business as indicated by the Porter’s model of industry analysis, companies can maintain their profitability and sustainability in the industry amid stiff competition.

Reference

Arons, H. d., & Waalewijn, P. (1999). A knowledge base representing Porter’s five forces model. Rotterdam: RIBES, Rotterdam Institute for Business Economic Studies.

Mother Bears Pizza. (n.d.). Mother Bears Pizza. Retrieved October 24, 2014, from            http://www.motherbearspizza.com/

Porter’s Five Forces Model: analysing industry structure. (n.d.). Porter’s Five Forces Model:        analysing industry structure. Retrieved October 24, 2014, from            http://www.tutor2u.net/business/strategy/porter_five_forces.htm

The Five Competitive Forces That Shape Strategy. (n.d.). Harvard Business Review. Retrieved    October 22, 2014, from http://hbr.org/2008/01/the-five-competitive-forces-that-shape    strategy/ar/1

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