📚 Seth MB


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Competitive Environment - Five Forces

Last updated Sep 11, 2023 Edit

# Porter’s Five Forces

# Summary for industry profits

# High industry profits associated with

# Low industry profits associated with

# The five forces

# Threat of new entrants

# Barriers to entry

# Bargaining power of suppliers

# Determinants of supplier power


# Worksheet

  1. Analyse why overcrowding in the industry might mean smaller firms may be forced out.

    When there are too many businesses operating in the industry, consumers will be offered a lot more choice, both in terms of products and in price. As larger businesses have more financial clout, they will be able to easily outcompete many smaller competitors on price, likely gaining more market share as a result. Smaller businesses won’t have the same level of pricing flexibility, so cannot afford to be involved in a price war. However, as the jewellery market is based on luxuries, people are often willing to pay a premium, allowing some smaller firms to outcompete their larger counterparts in terms of quality.

    Regardless, some small firms will have to go. Overcrowding means that the supply is higher than the demand, and as smaller firms have a smaller piece of the pie, they cannot afford to lose anywhere near as much market share as larger firms, meaning that they will likely collapse first.

  2. Evaluate the market conditions for the jewellery and watch industry using Porter’s five forces model.

    As the market is overcrowded, there are many competing businesses, which leads to consumers having much higher bargaining power. If they don’t like a product or a price, they can just go to another jewellery shop and buy something else. If there were fewer jewellery shops, then this would be much less of a problem for businesses, as consumers would be more limited.

    Premium jewellery will be made using expensive, precious materials, which will cost a lot and have fewer suppliers. This will lead to high supplier bargaining power and very elastic costs. Cheaper jewellery producers will use much cheaper materials that can be procured much more easily, from far more suppliers at a much lower cost. While, the lower quality materials will deter some higher end customers, or people looking to buy things like wedding rings, many people will be attracted by the lower prices . This means that the suppliers able to produce products cheaply will be more likely to succeed, especially during economic hardships where individuals have less money to spend. This means that manufacturers using cheaper materials are a potential threat to premium manufacturers.

    Larger companies typically have a stronger brand than smaller independent manufacturers, which means when someone mentions a piece of jewellery—the larger firm comes to mind. This gives them a massive advantage in terms of selling goods as marketing is less of a problem. However, they do also have a much larger budget which allows much greater marketing spending should they want to do a campaign for a new product launch or to rekindle their brand image.