March 19, 2015
Question 1: Figures 3.3, 3.7, 3.8 illustrate the five forces model of competition, and then specifically focus in on the power of suppliers and buyers (fig 3.7/ 3.8). Applying the diagrams, the following paragraphs will look to evolve these three figures into real examples from a current organization currently utilizing these models. In the first figure, Figure 3.3, shows an over-view of the basic five forces of competition- suppliers, potential new entrants, buys, firms in other industries offering substitute products, and rivalry among competing sellers. One of the industry leaders who exemplify this analytical tool the most efficiently is Wal-Mart, which I will use to apply these concepts.
Starting with the nucleus of the diagram- rivalry among competing sellers- Wal-Mart is positioned against similar companies such as Target, Costco, K-Mart, or Sendiks. These competitors offer similar products and service to what Wal-Mart offers, often creating competitive pressures. It is vital for Wal-Mart’s success to offer products/ services that these competitors offer, or at a lower price for similar products. My recommendation would continue to outreach to a variety of companies. With their larger national presence and strong brand name, Wal-Mart has the luxury of telling suppliers what price they will pay. This in turn, causes their prices to often always be low compared to the competition. I would encourage Wal-Mart to expand to higher quality food options, organic, and better produce. If they could perfect this, companies like Whole Foods, and Sendiks would be stretched to survive. Furthermore, they should consider investing more into R&D to help find products that they currently not even offering, or new ways to get them to the customer ie: home delivery, Ecommerce.
The second force of competition is the supplier. The supplier is able to create pressure stemming from bargaining power. For Wal-Mart, this is not as larger of a concern. As mentioned above they have access to a lot of companies as well as their excusive own product line, Great Value. Having a brand such as Great Value not only guarantees Wal-Mart 100% of there profits, but it offers the lowest price to consumers, which gains a massive competitive advantage over its competitors. It is up to Upper Management to continue to build out the Great Value brand, maybe offering more products, or expanding from just food to home goods. Hand in hand, management needs to remember to respect the other suppliers, and offer a fair price that suppliers will want to keep products on Wal-Mart shelves. Porter’s third force is the threat of potential new entrants. Wal-Mart has continually been pressured by the threat of companies coming into steal market share. However, there is a high barrier of entry. Wal-Mart, Target, and Costco have the market pretty saturated, and with the ability to keep prices low with mid to high quality it keeps new entries out. On the food space side though, Whole Foods, and Sendiks can steal customers by putting up locations by nearby Wall-Marts. Current trends show that people are likely to opt for the higher quality or fresher food products. The CEO needs to address the future vision of the business. They can continue to adapt and look to add “supreme” products and organic foods. Or they can stick to the current model and focus on essential products at a lower price. I would challenge them at looking especially at the food line. Maybe testing out some “organic” or fresh products in select locations in bigger cities. Buyers are the focus of the fourth force within the model. The buyers create pressure through the bargaining power they posses in what products they are looking to purchase. Cycling back to my example of Whole Foods moving into a region that Wal-Mart occupy. The buyers have the choice of a higher quality product or competing good to what Wal-Mart offers. It is now…