Five Competitive Forces That Shape Strategy Case Solution
In the article, Michael Porter \ determines the five forces which effects the position of the particular company in specific industry. Through the application of those five forces, the investor and analysts can easily determine the position of the company as it is generating value for the market.
Through this business model, the company can formulate better strategies which are based on the market condition in order to enhance its profitability and longer term sustainable value to the shareholders. The five forces business model focuses on the buyers, customers, products and competitors.
The framework of forces to the business determines that the growing industry might not be profitable in some cases. In addition to this, it evidences that the prospective profitability of a specific industry can be minimized through the mergers or alliances. The essential part of the framework is that the business can understand the comparative strength, which can be enhanced or diminished to the changes in government policies.
The Particular company can frame its structure against the negative forces to the company. Negative forces include the higher negotiation strength of major customers, the differentiated supplies of supplier and innovative ideas of new startups etc.
In case the major customer of the business switches toward another business, then in that situation the company can get a substantial loss of revenue. Another situation is where the company might not continue as a going concern when the supplier that supplies the differentiated material that is essential for the finished goods, denies supplying in future.
Positioning the Company:
The company can easily position itself in the market on the basis of different forces determined by the article. For instance, in the truck industry, there are many manufacturers of the truck and the market is strictly regulated. The intended buyer wants competitive prices as they operate large taskforces.
In addition to this, the buyers can switch the transportation from trucks to railways which suits them. Therefore, the truck should be manufactured according to those individual buyers who specifically own the truck and provide supplies to the small suppliers. This individual section is less sensitive to the prices of truck and has less negotiation ability as compare to large customer such as large textile company etc.
Through the five forces framework, the business can better procedures to reduce the consequences of the negative forces to the company. For example, in order to reduce the dependence on supplier that supplies differentiate material, the company can standardize the supplies and create differentiation by own operation so that in future the company can move towards the new vendor.
Apart from supplier’s power, the customers’ power can be minimized through launching large products range so it will difficult for the customer to transfer its buying to another company. In order to compete more effectively, the company should invest heavily on those products, which are different from the competitors’ products. Moreover, in order to protect the market share from the innovative strategic entrants, the company should invest in research and development as new entrant is unable to do so.
Application to the Starbucks Corporation:
The primary business of Starbucks is to operate Starbucks coffee shops. The business indicates that the company operates in snack and coffee industry. The company produces and retails the coffee and the historic data as well as it determines that the company’s performance is good in financial terms.
The investors of the company are confident over the financial performance and in addition, the company possesses the recognized brands worldwide. The company operates around 20,000 retail stores over the 50 countries, whereas the current number of stores has made the company as the largest coffee company in the world.
The retail stores provides range of products such as coffee, other beverages, bakery, and snack foods etc. The large products range is developed through two strategies; first by launching new products by its own operations, and secondly by acquiring small startups, which have good product tastes.
The industry structure indicates that the competiveness of industry is in between high and moderate. Starbucks has the largest market share, whereas the largest competitors of the company have shares almost equal to that of Starbucks. The minor difference between the market share of Dunkin Donuts and Starbuck puts pressure on Starbucks.
The consumers of the coffee and snack have the option to switch towards any other company, which indicates higher competition. Starbucks provides differentiated coffee with premium pricing, which reduces the competition level for the company. The companies operating in the coffee industry report lower growth rates in revenue, which indicates that the industry is in the maturity stage. Moreover, in such cases the players intend to attract the other company’s customer base as the revenues are stagnant.........................................
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