1. The average return on sales (ROS) in the US wheelchair industry is between 1-2% in 1993. What are the most important structural conditions that make the industry unattractive?
Evaluating the industry based on Porter's Five Forces framework, the following stand out as the most import conditions making the industry unattractive:
Bargaining Power of Customers: About seventy-five percent of wheelchair sales in the US were covered by insurance. Medicare was the primary insurance program, and other insurers often followed Medicare's lead. Medicare limited reimbursements, which kept a lid on the price of standard and lightweight standard chairs. More expensive chairs were not fully covered, which could dampen demand for those products.
Rivalry Among Existing Competitors: The American market for wheelchairs was dominated by three firms Sunrise Medical, Invacare, and Everest & Jennings. With perhaps the exception of some hi-tech power models, wheelchairs are essentially commodity products, so there is little room for differentiation. And since manufacturers set prices to conform to Medicare standards, it doesn't cost relatively more to switch from one manufacturer's brand to another's. This being true, sales and sales growth were more dependent on how competitors got their products through the channel, and profitability was a slave to cost structure. In Sunrise's case, its competitor Invacare had gained significant market share in every category other than ultralight (case Exhibit 2), and as low-cost producer, Invacare's margins at year-end 1992 were the highest in the business (case Exhibit 3).
Threat of Substitutes: It costs essentially nothing to switch from one wheelchair to the next, and while there may be some minor differences between manufacturers' chairs, there is no real distinguishing factor. On average, wheelchair users get new chairs every two to five years, and without anyway to lock customers in or build significant brand loyalty, users could...
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