3. Porter’s Five Forces on Woolworths
Porter’s five forces analysis was formed by Michael E. Porter in 1979 and this framework has had immense influence on industry analysis and strategy development (Davenport and Prusak, 2003). These five forces determine the competitiveness of the company and the attractiveness of the market, as a result, a well understanding of five forces may help a company get to know more about its industrial structure and find out a proper position with both high profitability and competiveness. Porter’s five forces include three forces refer to external resources, and two forces which are internal threats. Let us look at how each one of the forces relate to Woolworths Ltd.
(Munir R., Lecture 2, ACCG301, Department of Accounting and Corporate Governance of MQ)
3.1 Threat of new entrants
A market that yields high returns will definitely attract new entrants, which eventually may lead to a decrease of profitability for all firms in that industry. Therefore, barriers to enter the market become important in determining the threats of new entrants. First of all, in Australian retail shops and supermarket industry, the price offered is relatively low. Hence it is not an attractive market for firms to enter due to the low profit potential. Secondly, the investment cost, such as land and equipment, is quite high, which means only large businesses may have the capital ability to compete in. Thirdly, based on the annual report- 2011, Woolworths Ltd maintained a clear focus on meeting customers’ needs by delivering lower prices, greater ranges and better shopping experiences. It enjoys a high customer loyalty with 8.4 million members in Australia and New Zealand, and also a great completion of over $704 million off market share buyback, which makes it difficult for newcomers to gain market shares. Moreover, some regulatory or legal restrictions could also become a protection of existing firms. 3.2 Threat of substitutes
Substitutes are the...
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