The five forces model framework was developed by Michael E. Porter in 1979 to analyse the industry factors that affects the company’s competitive strategy and helps to determine the threats from competitors in the market. According to Porter, there are five factors namely: Potential New Entrants, Substitutes, Industrial competitors, Buyer power and Supplier Power. Porter (1988)
Figure 1. Five Forces Framework
Threat of New Entrants: Low to moderate
Procter and Gamble (P&G) products are much well established with successful brand names which provides them strong retailer relationships and priority on shelf space. New entrants will need to be able to differentiate their products to compete for market share that has been built over years. Due to the long history since 1859 in fast consumer goods, P&G is much efficient in launching, developing and marketing their products which allows cost advantage. Moreover, new entrant needs to have high capitals for large scale production to compete with economic of scale. However, the barrier to entry for small company with unique features in products may offer competition in niche market segments. Bargain Power of Supplier: Low
P&G has received good reputation as one of the top 3 leaders in consumer goods industry and this provide a good bargaining power with suppliers as they often wants a continuous relationship in business. In terms of stability, credit crisis or unstable interest rates does not affect the trust in this company. Most of the raw materials P&G needs are commodity and hence they are able to find multiple suppliers and keep cost low. For requirement on good quality materials to produce top tier products, P&G is are able to purchase them at reasonable price. Furthermore, with wide contacts of suppliers, P&G can easily switch suppliers to work with. Bargain power of Buyers: Moderate
There are two tiers of Buyers that P&G serves, the retailers and end consumers. For major supermarkets...
Bibliography: Porter, M. E. (1998) The Competitive Advantage: Creating and Sustaining Superior Performance. NY: Free Press.
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