Porters five forces of competition
Under this model, porter mentioned threats of new entrants who may be interested in the same business. New entrants affect market share, thus reduce profitability and increase costs of marketing (Porter, 2008). New entrants also pose a threat since they may introduce a different entry strategy that is inconsistent with existing firms. New entrants also may redesign, marketing routs parallel to existing ones, and thus creating market related conflicts. Porters also looked at the power of suppliers in the model as key drivers of business profitability, because they influence supplies like raw materials and other services needed by firms, in order to produce.
Pricing of raw materials and other services is vital in determining the price of the finished product. Suppliers determine the level of input thus affect production related overhead. Another aspect of competition in the porters framework is the bargaining power of customers. Porter insists that, customers can mount pressure on the firm to adjust its prices downward, particularly in a price sensitive environment. This also involves buyers choice and preferences as well as the purchasing power of such buyers. Threats of substitutes are also another factor that determines
OVERALL BUSINESS STRATEGY
3 firms’ competitiveness according to porters theory. Under this, Porter was concerned with possible product substitutes that can provide alternatives to customers in the event of price variations. This reduces market attractiveness thus reduces firm’s profitability. At the center of all these, Porters model also dwelt on competitive rivalry as one of the key aspects of the five forces of competition. The number and capability of the competitors, determine the level of market attractiveness that may affect market penetration and profitability of firms (Porter, 2008).
Application of Porter’s five forces of competition
This model applies to our company in many ways. We have to consider that as our company seeks market expansion, there is likelihood of new entrants in the industry coming on board. In the event they produce similar products at a lower cost, customers are likely to switch to these alternatives, which is likely to affect our market share. We have also to consider that using external website may reduce our direct physical contacts to our renowned customers as much as it provides an avenue for new customers.
On the other hand the bargaining power of these new buyers may also affect our prices in the new market much as our production costs may reduced through online marketing. The company also needs to consider the existence of rival firms that may target our best customers by providing lower prices for similar products. This is because our rivals will be able to monitor our strategies on our website are likely to employ counter tactics to our strategies.
The power of suppliers should come into the picture when developing these strategies because expansion of the market may increase demand for raw materials thus mounting pressure on suppliers to supply more. The power of these suppliers to bargain for supplies also determines the pricing aspect in the both existing and new markets. Suppliers may also be forced to seek alternative sources of raw as demand increases. These may come with extra costs of obtaining these raw materials, which is likely to be passed to our firm. Expansion may also come with the introduction of new suppliers. These suppliers may have different strength and bargaining power. Our company will also require some time to build mutual trust and good working relationships in the event of new suppliers.
The cost of switching from one supplier to another may adversely affect our firms profitability. This should therefore be put into consideration, thus strategies should
Generic strategies applicable to Adventure Works
As our company embarks on the development of this strategic plan, in relation to its operational changes, there is a need for new strategies. This can include adopting relevant generic strategies developed by porter, in our scenario, adopting a focus strategy is key in our new direction. The company needs to focus on our existing customers and other potential customers in Europe and develop contacts with them. Focus strategy will enable us to concentrate on a narrow customer segment with an attempt to achieve cost advantage. However, we need to employ a focus strategy with an element of cost leadership given that the firm indents to utilize online marketing; for this reason, there is need to monitor the implication of this online system on our
OVERALL BUSINESS STRATEGY
4 distribution costs. Online business provides two important advantages that include reaching a wide number of potential customers and reduces barriers that affect business (Rainer, Kelly, and Cegielski. 2012). This strategy best fits our specialized business that revolves around bikes and metals. This company needs to capitalize on existing customers needs with whom it has already built good relationship and mutual. There is need to strength our regional sales teams as we embark on our new plan. This can be done through mapping of customers in every region and customization our website based on regions to suit the already existing systems. The focus strategy will enable our company to concentrate on a market niche that we understand most. This strategy is possible because of already specialized venture in bicycle and metals. Our company will be able to capitalize on the existing customers based on our brand loyalty. In this case, as we broaden our market scope, we have to consider our market niche that we are quite familiar with before penetrating any new market. We also need to bring something new in the mix that will enhance the attractiveness of our product to customers. When applying the focus strategy, the aspect of cost leadership will not pose a major challenge because our company will rely on our website as a key marketing tool when targeting bicycle buyers. Relatively, the company will be able to reduce cost of distribution through the utilization of online marketing. Cost reduction will also be realized across the value chain through engagement of specialized suppliers and market agents across our company.
Superfluous Activities in the value chain within the target segment will also be eliminated through focus strategy. Cost leadership will also be necessary at this point of time because broadening market entails penetrating other competitive environment, however, we need to concentrate on existing customers as per contact our list, in this case our company needs to understand market dynamics including the bargaining power of suppliers and buyers before the aspect of cost leadership is prioritized. Much as other strategies like differentiation may create brand loyalty in the market by reducing oversensitivity of customers on prices, we have to consider that the company already has the best customers that it entails to concentrate on during its expansion. The newly acquired Importadores Neptuno in Mexico, provides a framework upon which networking and mapping of potential customers can easily be achieved through our regional sales team. The focus strategy will be right for our company to sustain and satisfy already existing customers, we shall also be able to clearly segment our products in the new geographical regions in relation to renowned customer.
Focus strategy is built on the concept of serving a defined group of customer nitch exactly what our company should look forward to achieve. Also to note is that focus strategy can help achieve differentiation as well as the low cost advantage within a narrow market. The focus strategy will also echo well with this company because of the understanding of customers unique needs and market dynamics. This is because we have all along served our customers uniquely well, according to the feedback we get from the hem.
One of the most effective tactic we can use to achieve this is timing tactics. Douglas, John and
Essam (2012), p. 130 noted that moving earlier than competitors to introduce and sell new
OVERALL BUSINESS STRATEGY
5 product or model makes an organization first mover while others will be early followers. While we employ time tactics we must consider our resources, capabilities and competences. The driving force in timing tactic is considering a market share as organization goal. OShaughnessy, (1995), established that by using market share as a goal, a company either intends to protect its market share or advance its market share.
By use of a timing tactic, our firm will be able move before competition, move with competition and move away from competition as provided by OShaughnessy (1995) in his competitive timing direct matrix. Effectiveness of time strategy will be determined by how we choose and prioritize our goals. Setting implementation goals in terms of long term and short term will enable us to evaluate the progress and development intervention approaches where necessary. This involves setting targets in relation to our current position in the market and time of achieving these goals for evaluation purposes.
The competitive position tactic will also be key in the implementation of this strategic plan. We need to position our initiative as market leader who will be followed by other competitors by virtue of our customer base and their loyalty across our regional markets. More significant is our level of technology that includes reaching our extensive markets through our website. The competitive position tactic will make our competitors more of followers. Taking up competitive approach will mean that, our company defends its position as market leaders within our market scope through customer defensive tactics. It is good to understand that our expansion majorly focuses on existing customers, thus losing even one of them will be detrimental to our strategy. Douglas, et al.p. 134 noted that leaders are always vulnerable to attackers. In this case, positioning ourselves as market leaders need the adoption of defensive tactics.
Defensive tactics entail to reduce the possibility of attack and reduce threat attacks to an acceptable standard (Porter 1985b). One of the ways is protecting current market share through position defense tactic by building fortification around our current position. By focusing our attention on this strategic plan, our company will be able to position and maintain itself as leading firm in manufacture and sole distributor of bicycles.
I will be glad to be part of the team that will oversee the smooth implementation of this strategic plan when in place, and will always be available in case you need any of my input.