Porter’s five forces Essay

It is very important for the drug companies and supermarkets to use the five forces to ensure that they strategically position themselves in a way that they become very competitive to make sure that they remain in business and also make and maximize profits. Managers have a very important role in ensuring that they do enough analysis so that they employ strategies to make them make the best out of the business that they do. Porter’s forces can be analyzed to act as yard sticks for the supermarkets and the drug companies to position themselves so as to do a profitable business as they face a very competitive and saturated environment that is very sensitive to changes. (McGahan, 2004) The supermarkets and the drug companies should utilize the Michael Porter’s five forces analyses as a framework to guide them operate in the competitive environment. The forces that affect the supermarkets and drug companies are those that are close to them and need to be properly analyzed since they affect their ability to effectively serve their customers and also make profits. When the supermarkets and drug companies face changes in the five forces, they need to re-examine the market place and make decisions that will ensure that they remain profitable and challenge their competitors. Their management should highly depend on research and marketing intelligence to gather the necessary information that will help them make sound decisions that will help their firms since they are faced with a lot of competition from their rival competitors. The closeness of substitutes Substitutes are alternative products that have the ability to satisfy similar needs and give solutions. Substitutes in the supermarkets and drug industries reduce the potential returns since they place a ceiling on the prices offered for products. Firms that realize that products being offered bring a lot of profits look for substitutes products that can substitute so that they may also enjoy profits. Drug companies face a big challenge since scientists and researchers are coming up with products generic drugs that compete very much with the existing original products. Due to research, drug industries are discovering new products every day that are either more effective or cure the same diseases. This has become a very big challenge since the market has become open and new discoveries are welcome every time. Customers will always be tempted to try the new products to see whether they are more effective and are made to believe that the newest drugs on the market are the best since they are more new and tested. Malaria drugs for instance are changing every time and patients believe that the new discoveries can handle Malaria more strongly than those that were there before. Marketers in drug industry must constantly try to sell there drugs by marketing them all the time and assuring their markets that the drugs they have are the best. Almost all drugs have tested substitutes and it gives the sellers and the users a variety of choices to choose from and making it very hard for some drugs to be pushed. The drug industry is so concentrated and even the herbal industry is attracting a lot of audience sine they claim to have varieties and more effective drugs. (Porter, 1985) Supermarkets are facing very stiff challenges since many supermarkets are opening up everyday with better supplies from substitute goods that make them appear to be cheaper than the others. Customers will go to those supermarkets with variety of substitutes so that they may get more cheap goods that can meet their needs. In a supermarket, companies will take and buy spaces in the supermarkets and also arrange and make them more appealing than the products from their competitors. When we look at basic products like bread and flour, you will find that there are many substitutes that will be in the same supermarket and that can play the same role and act as substitutes of the other. Supermarkets face a stiff challenge from the others and therefore need to do extensive advertising, introduce new cheap products every time and increase service to the customers since there is a stiff competition from other supermarkets. Supermarkets will always try to take customers from each other by winning them with the substitutes that they offer and services that they also offer at a cheaper price. (Lovelock, 2006) The Intensity of Rivalry among Established Companies Supermarkets and drug companies face a very competitive environment that has a big concentration of rival competitors making it a very competitive venture in business. They compete with heir rivals across al levels and try all strategies to ensure that they beat their rivals and try to do extensive marketing and innovation to attract more customers every day. There are many established companies that are more organized and have better strategies than the new ones that come up and therefore have a competitive edge over the others. An established company will mean having a well developed network that has a good client base and that is supported by customer loyalty and therefore locking out the new firms that try to make an impact by trying the existing markets. The well established pharmaceutical firms give a big challenge to the new companies in the market that try to make their products known. Even though substitute products are received in drug industries, it becomes easy for the established firms to push customers to start using their new products in the market since they have a name in the market and customers are loyal to them. (Porter, 1985) Customers will always be pulled to go to the already established supermarkets that they are used to them and will always feel that their services are the best. They also believe that products and services that are offered in the established supermarkets are the best and all they offer are the best to take car of their needs. The new supermarkets are highly challenged and must therefore position themselves strategically by ensuring that they price their products well and also do extensive advertising to market their products and services and have new customers and prospects that will be customers in future. The rate of growth of the drug companies and supermarkets has become a big challenge as new ones come into the market every time with very attractive terms for customers and therefore pulling them and pulling away their loyal customers. Competitors in the drug companies and supermarkets have diversities and therefore make them very unique and unequalled and thus being very hard to compete with them in a very competitive environment due to high concentration of players who are doing the same businesses. There is need for e advertising to market both individual products and the supermarkets and drug companies due to the stiff competition from rival players in the same field that is concentrated highly. The bargaining power of suppliers Suppliers take advantage of their unique supplies to ask and bargain for what they want and enjoy the monopoly and charge expensively for the products or services that they offer. Customers are very sensitive to any changes that may affect them that are caused by the bargaining power of the suppliers. Suppliers are a competitive threat in drug industries because they can raise the prices of new and the old supplies and therefore making the customers to try substitute products that can satisfy the same need. Suppliers may cost the drug companies a lot of financial constrain if they switch and fail to supply their products as it is involving to get new and reliable suppliers that can give quality and be efficient all the time. (Grant, 2005) Doctors will recommend their clients to use substitutes according to their financial abilities and are in a position to refer them to use any of the substitutes. Supermarkets must try as much as possible to bargain well with their suppliers so that they may get quality products at the right price so that they may also sell and price their products well in relation to those of the competitors so that they may not loose customers to the other supermarkets. Suppliers will have more power if they are few or alone in the market and will give their products at a very high price and will affect the sales of the supermarket in the long run. It is very important for the drug companies and the supermarkets to have suppliers that can supply substitute products that are more or les the same so that their customers will not run to the other outlets that have the products that they need. In the event that the suppliers reduce their products quality and raise the price of their products, it will be a great competitive challenge to the drug industries and the supermarkets that offer the same services. The determinants of the suppliers power in both the supermarkets and the drug companies includes: suppliers concentration in one particular place that is central in location, volume of suppliers that they offer to the supermarkets and the drug companies and finally the costs related to the total purchases that they do. The suppliers ensure that they take advantage of their strengths to bargain and register as much profits as possible and make the buyers of their suppliers to accept what they offer and fix high prices. (Cullen and Boteeah, 2005) The Risk of Entry by Potential Competitors The new competitors enter into business with an intention to bring new capacities that never existed before so that they may give competition to the existing firms. Every new entrant into the drug and supermarket business is a big threat to the existing firms since they may pose a big danger when they come and take the existing customers by intimidating them with good attractive services and also set their businesses in strategic points that will attract more customers. Supermarkets and drug companies are very profitable and has therefore it has been attracting very many new entrants who perceive it as a good profitable business that has a lot of assurance since the customers will always need food and other materials offered I the supermarkets and drugs to help prevent and cure diseases. Their main interest is to capture big market share that exists so that they make more sales and therefore make profits. Supermarkets face a lot of competition from new entrants who come up with new and customer satisfying service that are very attractive and take their customers. They are few barriers to the new entrants in this field and many businessmen are thinking of opening up one stop supermarkets that are in strategic positions to attract customers. (Mark, 2001) There are many barriers that might be in the drug industries that may affect the drug firms. They include the following: government policies on drug companies, economies of scale, capital requirements that are needed to start a drug company, brand identities and reactions from firms in the drug industry. New entrants in the drug industry are seen by those that are already in existence as a threat since they take and reduce their market share and make them reduce their sales and therefore register fewer profits from the sales. Though governments might create barriers to help streamline the industry, it will not fully succeed since many new entrants might meet the requirements put on them and give challenge to the already flocked market. The higher the entry barriers, the less it is likely for outsiders to enter the industry. (Sparrow and Hilltop, 1994) The Bargaining Power of Buyers This is the marketplace of outputs. Customers in the supermarkets and drug industry put the two businesses a lot of pressure since they are very sensitive to any change in prices and are always ready to window shop and find where prices are relatively cheap. The availability of substitute products in both the supermarkets and drug companies has made it very challenging for all those who run these businesses and are therefore supposed to learn the behavior of their customers so as not to scare them to their competitors and therefore reducing their profitability. The players in the drugs and supermarket firms make it .Many supermarkets and drug companies give room for their customers to bargain and make the competitors to be on toes. It is very important for the drug companies and supermarkets to highly depend on market intelligence so as to be very strategic in their pricing since there are many supermarkets and drug industries that are ready to reduce their prices by negligible amount that can attract customers from their competitors. (Brewster, 1995) Buyers are ready to run into substitute products that are being marketed everyday in the supermarkets and drug companies due to the changing technologies that are leading to cheaper and quality production of substitute products. Advertisers are taking advantage of the sensitivity that the buyers have to market new products that hit the market daily. The drug industries and the supermarkets should have a variety of substitutes in their business premises to pull all the customers and reduce the customers from moving to their competitors who offer various products in different prices. Since buyers are the ones that ensure that there is continuity of business, the supermarkets and the drug companies should learn and be very sensitive to the changing tastes and preferences in order to win buyers and also ensure that they remain loyal to them since the concentration of many firms is a big threat. Supermarkets and drug firms must ensure that they use the Porter’s analysis since they face stiff and very competitive challenges from firms that have realized that they can make lucrative profits from the supermarket and drugs since they are assured of a lot of profits from a large customer base that is attracted by these firms. They need to assess the market very well and ensure that they learn there customers very well and also ensure that they position themselves to compete more effectively to remain in business and also maintain a good relationship with their customers so that the competitors may not take away their customers. 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