Analysis of Sound buzz and its business strategy using the competitive force model. What strategies did it develop for dealing with competitive forces?
Porter’s Competitive Forces Model in Sound buzz’s
|Forces |Forces in Sound buzz |Impact | |Threat of new entry of new competitors |P2P,Napster, iTunes |New competitor – possibility of losing business or | | | |share profit among the new entry | |Buyer’s ( customer) bargaining power |customers buying music sharing among their |Reduce price and also push to increase quality and | | |friends |service | |Supplier’s bargaining power |Record labels, EMI, BMG, Sony, limiting their |Increase price, reduce quality | | |powers | | |Threat of substitutes products or service |Napster sell much more lower cost |Reduce demand / loss sales | |Rivalry among existing firms in the industry |CD shops |Competition on price and services, quality |
Micheal Porter has proposed model that have become popular ways to study and explain basic business activities that is Competitive Forces Model (Porter 1985). These frameworks us use to analyzing Sound buzz’s competitiveness and used to develop Sound buzz’s strategies for the company to increase their competitive edge.
Threat of new entry ( New Market Entrants)
The more difficult the barriers are to overcome by those trying to enter the market, the better they protect the companies already in the market from potential new entrants. New comes as Napster, P2P and iTunes, is the bigger threat for Sound buzz, Their costs is much lower than Sound buzz. They only advantages to Sound buzz is they had and exclusive music rights in AP. Other than new threat, customers will purchase a single service and them sharing the service among their friends. This will cause loss of repeating sales. New companies may have more advantage, they come with new technology prospect to serve the younger market in music industry.
Customer bargaining power
Overall, the threat the music recording industry faces from buyers is considered to be relatively high. From the value chain, one can see that CDs are distributed by the record labels to retailers and in this industry a few larger brick and mortar retailers account for the majority of music sales. As of 2007, Wal-Mart, Best-Buy, Sound buzz, Amazon, and Target control over 50% of the sales of CDs in the music industry. Because these five retailers control such a large market share within the industry they have substantial power in setting prices. The record labels are dependent upon these retailers to carry their products and therefore most offer prices that retailers must agree to. Furthermore, as an increasing percentage of music sales are occurring through the online channel, Sound buzz is gaining power and market share. Sound buzz controls over 70% of the digital music download market, causing record labels to be bound by pricing structures in which Sound buzz sets. These factors decrease revenues and decrease profits for the industry. Customer had many choices; they can download themselves and also can rip themselves.
Supplier bargaining power