Module Code: PICS01C
Student Number: 7305-272-8
Due Date: 15 March 2011
a) Five-forces diagram for analysis of the retail car industry in the greater Johannesburg area
1. Competitive Rivalry
Competitive rivalry exists between companies with the same or similar products/services and similar markets. Factors to be considered include:
• The number and size of competitors
• The rate of industry growth
• Differentiation and switching costs
• Fixed costs or perishable products
• High exit barriers
• Diverse strategies
Companies have to strife for a competitive advantage over its rivals. Industry concentration is measured through concentration ratios. A higher concentration ratio indicates that a company holds the largest share of the market resulting in a less competitive and more disciplined landscape.
Competitive advantage can be obtained by a combination of the following strategies:
• Changing prices
• Improving product differentiation
• Creatively using channels of distribution
• Exploiting relationships with suppliers
Companies should formulate a corporate strategy that addresses these areas within the five forces competitive analysis.
2. The Threat of entry
The threat of new competitors entering the market can be managed by restricting the entry barriers through:
• Economies of scale
• Capital cost of entry
• Control of distribution channels
• Good relationships
• Legal restraints
A healthy economy should provide freedom for any type of company and competition to enter the market. This should however be closely managed by existing companies in order to stay ahead of its game. The risk of new entrants can negatively affect a market resulting in companies closing down. Increasing and decreasing profits have a direct relation to new entrants in the market. When profits are high... [continues]
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