The following report is an analysis on the current business conditions facing the Ganong Bros. Limited (GBL) confectionery company. The report will include a Diamond-E Analysis as well as an examination of the variety of different business alternatives available to the company complete with a recommended action plan regarding the most suitable alternative for the firm. Diamond-E Analysis
When analyzing the current environment, numerous tools can be used. In this report, the tools that will be used are Porter’s Five Forces and PEST. Porters Five Forces
Threat of Substitute Products: High.
The threat of substitute products is high for a few reasons. The first is the number of substitutes readily available to consumers. There are many substitutes available for confectionary products that all pose a threat to GBL, including potato chips, cookies and cupcakes. The low cost of switching to these substitutes is another reason for the high threat of substitute products. Chocolate is a relatively inexpensive item and it is not difficult for customers to switch to one of these substitutes. Although there may be high brand loyalty exhibited by customers, the low cost of the products cause the threat of substitute products to be high. The above reasons cause the threat of substitute products to be a high risk. Threat of New Entrants: Medium.
The threat of new entrants is medium for the following reasons. First, there are very high capital requirements to get into the industry lowers the threat of new entrants. There are high costs involved with purchasing equipment, purchasing a factory as well as the initial marketing of the product. Secondly, the difficulty to obtain distribution channels is another reason that lowers the threat of new entrants. Competitors that are already established have the advantage of having distribution channels locked up whereas new entrants will have trouble to get distribution. One of the things that raises the threat of the new entrants is the low switching costs. As discussed earlier, the costs of switching to a competitor or substitute product is not very high despite brand loyalty playing a role. Due to all the above factors, the threat of new entrants is seen as a medium risk. Bargaining Power of Buyers: Low.
The bargaining power of buyers is low for a variety of reasons. There are a large number of buyers in the market and no buyer in particular has any real influence on the product or price, which lowers the power of buyers. Another reason buyer power is low is because of the fact that buyers do not pose a credible risk to backwards integration. None of the buyers in the market would have enough financial resources to backwards integrate and produce their own confectionery products, which also lowers buyer power. These above reasons are why the bargaining power is seen as a low risk to the confectionary industry. Bargaining Power of Suppliers: Low to Medium.
It is tough to gauge the bargaining power of suppliers as not much is mentioned in the case; however there are a few factors that lead it to likely be a low to medium threat. One of the reasons it would be a low threat is because of the difficulty for suppliers to forward integrate into the market. Much like buyers backwards integrating, it would be very difficult for suppliers to forward integrate due to the very high capital costs. One of the reasons the bargaining power of suppliers may be seen as a medium threat is due to the likely fact that buyers have only a limited number of suppliers that they prefer. This gives the cocoa suppliers a bit of power in the sense that they have the chocolate manufacturers somewhat dependent on them for their supply of cocoa. These reasons are why the bargaining power of suppliers is seen as a low to medium risk. Intensity of Competitive Rivalry: High
The intensity of competitive rivalry is seen as high for a number of reasons. One of the reasons is...