Michael Porters five forces framework helps identify the attractiveness of an industry in terms of the five competitive forces: the threat of entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between competitors (Johnson and Scholes 9e P 54). This framework will be used to conduct the analysis of B & O’s markets.
Threat of New Entrants
The first element in Porters model is the threat of new entrants. Looking at the audio visual industry it is difficult for a new company to come in to an already dense market with many brands with the intention of penetrating the market. There are several barriers to entry, firstly the level of investments required to produce these products, secondly there is already very fierce competition within the existing market for audio visual items, thirdly there is brand loyalty with some of the brands that have existed for decades, a new brand will need to first establish itself to compete in this arena especially with a niche brand like B & O and lastly the profit margins are under pressure due to many television producers all trying to gain market share. This also leads to another barrier in the form of economies of scales, Sony and Toshiba have been leveraging on the aspect of economies of scale to penetrate and monopolise LCD technology in the market (Johnson and Scholes 9e P671). B & O is unlikely to be threatened by a new company entering the market; it is the current existing companies that are concentrating on different market segments that could potentially be the biggest threat as nothing stops them from adopting a differentiation strategy and thereby entering the high end niche market which is B & O’s only focus area (Brand Republic, Alex Brownsell) The trends of consumers seem to focus around intangibles hence product experience becomes pertinent when differentiating between the different brands. Design, technical specifications and staff competence has been the distinguishing factors that have kept B & O at the forefront for many years in the past. They have use this to protect themselves from new entrants and imitations through there differentiation, high level of quality and the use of technically complex materials. Over the last few years other major players like Sony and Samsung have started challenging B & O with their innovative designs and technologically advanced products. These large corporations have large budgets and are able to provide high end products at a lower price than B & O (Johnson and Scholes 9e P671) The threat of larger corporations entering into B & O’s niche market segment is highly possible, new entrants into the audio/visual market doesn’t really pose an issue to B & O.
Threat of Substitutes
The second element in Porters framework is the threat of substitutes. This threat is of great concern when it comes to industries that are dependent on technology as technology is changing at a rapid rate. B & O have adapted their strategy to focus on their core (Johnson and Scholes 9e P670) which is actually a “single function” product; this puts them into a very vulnerable position as the new generation customer may prefer a multifunctional product. If we examine the price/performance ratio these products are cheaper than B & O’s which is sold at premium and they also offer more functionality. We currently see these sorts of trends on a daily basis with the introduction of a single product that could serve as a mobile phone, computer, MP3 player all in one at a fraction of the price. This offers convenience and practicality for the individual on the move. The trend toward online movies on mobile devices is increasing (BBC News 2006). B & O needs to take these factors into consideration, they need to be aware of...