Making Business Decisions I: Porter’s Five Forces Analysis 1. There are several things to look at with Buyer Power: bargaining leverage, buyer volume, substitute’s available, buyer’s incentives and price sensitivity are just a few things that encourage buyers to purchase. Buyer power is high when the buyers have many choices of where and who to buy from and low when there are few choices.
Broadway Café is located in downtown along with at least five other coffee shops. This means buyer power is high because there are substitutes and this automatically brings price sensitivity into play. The next tool needed to look at is Supplier Power. Supplier power is the ability that suppliers have to influence things like prices, quality or availability of products. Broadway Café is a coffee shop and there are several options for buying supplies like cups, napkins, stir sticks, things needed to serve the coffee. There should also be supplier options to buy the coffee from unless the coffee is a specialty. Buyer switching cost would also be low if a supplier were to increase their prices and in most cases substitutes are available; therefore in this case I believe the supplier power is low.
Porter’s threat of substitutes is defined as the availability of products that the consumer can purchase instead of your product. Everywhere you look there is a new coffee house being built. People can substitute other coffee shops, convenience stores or fast food restaurants that serve coffee or other items like tea, soda and coffee from home; also, the switching cost are low for the consumer. All of this combined means the threat of substitutes is extremely high in this case.
The fourth item in Porter’s model is the threat of new entrants. The threat of new entrants refers to the ability of new competition to enter the market. Starting a coffee shop does not require economies of scale, the capital investment is low and consumer switching cost is low; all of this means the...
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