Poters Five Forces - Competitive Rivalry - Prerna

8/9/2019 Poters Five Forces - Competitive Rivalry - Prerna

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Poters Five Force Analysis:

Virendra Shekhawat- 15

Sandra Fernandes - 12Vaijant Narvekar - 29

Nandita Sheth 44

Priya Save - 09

Prerna Bhatt - 07



Porters Five Forces



Bargaining Power of Suppliers

The inputs you require are available only from a small number of

suppliers.

The inputs you require are unique, making it costly to switch suppliers.

Your input purchases dont represent a significant portion of the suppliers

business.

Suppliers can sell directly to your customers, by passing the need for your

business



Bargaining Power of Buyers

Your industry has many small companies supplying the product and

buyers are few and large.

The products represent a relatively large expense for your customers.

Customers have access to and are able to evaluate market information.

Your product is not unique and can be purchased from other suppliers.

Customers could possibly make your product themselves.

Customers can easily and with little cost switch to another product.



Threat of New Entrants

Processes are not protected by regulations or patents.

Customers have little brand loyalty.

Start-up costs are low for new businesses entering the industry.

The products provided are not unique.

Switching costs are low.

The production process is easily learned.



Threat of Substitutes

Your product doesnt offer any real benefit compared to other

products.

It is easy for customers to switch.

Customers have little loyalty.



Rivalry Among Competitors

One firm or a small number of firms have incentive to try and become themarket leader.

The market is growing slowly or shrinking.

There are high fixed costs of production.

Products are perishable and need to be sold quickly.

Products are not unique or homogenous.

Customers can easily switch between products.



Threat of substitutes

In Porter's model, substitute products refer to products in other

industries. To the economist, a threat of substitutes exists when a

product's demand is affected by the price change of a substitute product.

A product's price elasticity is affected by substitute products - as moresubstitutes become available, the demand becomes more elastic since

customers have more alternatives.

A close substitute product constrains the ability of firms in an industry to

raise prices.




The threat of substitute for Nano car is that of electric car, the new entrant

in the small car sector is the Morbi-based world famous clock- maker

Ajanta group.

The company is planning to manufacture an electric car at its unit at Kutchdistrict and market it at a price lower than Rs 1- lakh Nano. The company

is already manufacturing electric scooters and bikes under Oreva' brand.

Production of electric car is not difficult for them as the technology is

almost similar and 70 per cent of its parts can be produced in-house,giving them an edge over the vehicle's pricing. The Ajanta group is serious

in its attempt to keep the basic price of the proposed car as low as Rs

85,000.



At present, in the electric car segment only Reva car is available in India.

Another player in the small car segment, the Rajkot-based Field Marshal

group, is in negotiations with Australian company Farnow Technologies for

a joint venture for a low cost electric car.

Tata itself is believed to be making an electric version of the Nano, called

theE-Nano which might well turn out to be the "world's cheapest electric

car" which is more eco-friendly. It's supposed to be as cheap as the

conventional gasoline version.




So there is a high threat of substitutes for Nano as electric cars trying to

keep prices lower, less cost of running as a product differentiation

Price band - The threat that consumer will switch to a substitute product if

there has been an increase in price of the product or there has been adecrease in price of the substitute product. If the price of the NANO car

will increase the main expected customers the one switching from bike to

car will not move to car and will remain in the bike only. Thus the price is

kept checked in this manner




Bargaining Power Of Suppliers




To estimate the bargaining power of Suppliers we need to analyse Howdependant on your business is your supplier, or are you dependant on yoursupplier? How much power does your suppliers have? Can they raise pricesor reduce service without the fear of losing your business?

The more powerful the suppliers to an industry, the less profitable theindustry tends to be.

Fewer suppliers that you have to choose from the less power you have to

negotiate. Other factors such as the cost to switch suppliers also plays a part

in determine who has the power.



U

nique Service / Product Supplier with a unique product that contributes to the uniqueness of your

product has a lot of negotiating power, unless they too are dependant onyou.

In case for Nano due to the Cost margins some of the spare parts wererequired to be designed separately so there were limited substitutes.

But the barraging power was suppressed to some extend due estimatedlarge order in futures.

To save cost and weight, the Nano's 624cc, two-cylinder gasoline enginehas a single balance shaft instead of one per cylinder.

For eg.one of its supplier Bosch Automotive adapted a motorcyclestarter motor for the Nano to save more weight , and many such changesby redesigning mature technologies into new products that are smaller,lighter and less complex




Number and Size of Suppliers

A company to manufacture its products requires raw material, labor etc. If

there are few suppliers providing material essential to make a product then

suppliers can squeeze industry profitability to great extend.

In case of NANO the suppliers are limited and the size of the suppliers are big

enough to bring about the controlling power in the puce of the car. The NANO

car has more than 128 suppliers in all and the major portion of the building

cost of the car is the parts supplied by the suppliers.




Ability to Substitute:

Suppliers products have high switching cost. In many case even when

substitute are available its not that easy to opt for substitute as the next

product in the assembly line depends upon it. If the change in the any partis brought about the long list of depended parts also have to

changed,which in most cases is not feasible to do.

In case of Tata Nano some of its spare parts like 12-inch wheels which

need three lug nuts, single windshield wiper, instrument panel with justthe speedometer, odometer and fuel gauge etc . were so unique that they

were never before used or manufatured for automobile industry.




Barriers To Entry



B ARRI E RS TO EN T RY

Time and Cost of Entry: Time is most essential thing while launching a product in any market. As the demand for small car was high in the market, the launch of NANOwas quite feasible.

Start-up costs (Initial Capital) to set up a new firm is very high, as more

commitment is needed in advertising, R&D and capital asset, hencechances of new entrants (new businesses) are low for entering theindustry.

Knowledge and Technology: Processes when protected by regulations or patent, prevents others from

using it and thus creates barrier to entry. TATA motors have great knowledge/ experience in the automobile

industry and have prominent technological advantage because of therecent acquisition and mergers.

1) http://www.ces.purdue.edu/new 2) http://emerging-entrepreneurs.blogspot.com



B ARRI E RS TO EN T RY

Product Differentiation and Cost Advantage:

The product provided has to be unique in terms of features, price

etc. It has to be different and attractive so as to be accepted by thecustomers.

The price of the NANO car was one thing that has attracted thecustomers.

Customers have strong brand loyalty, hence along with the price,the image, trust the name TATA carries with it.

1) http://www.ces.purdue.edu/new 2) http://emerging-entrepreneurs.blogspot.com



BARRIERS TO ENTRY

Government Policy and Expected Retaliation: Government restricts competition through regulations and

restrictions. Entry by new firms is difficult when established firms have

favourable access to raw materials, locations, or government

subsidies. Government tried to promote TATA Motors to start a plant by

providing land and tax rebates. But the unexpected retaliation by the local people surface in the

setting up of the plant which costed the company a lot.

Access to Distribution Channels:When a new product is launched a well developed distribution ismust for its success.

TATA motors had an advantage of well established distribution

channel across the world.1) http://www.ces.purdue.edu/new 2) http://emerging-entrepreneurs.blogspot.com



Mergers & Acquisitions of TATA MOTORS.

Source: http://www.tata.com/htm/Group_MnA_CompanyWise.htm



Bargaining Power Of Buyers



How Much Power Do Your Buyers

Have Over You?

Number of customers / Volume of sales:-

If there are few buyers then they are able to dictate the terms. They pulldown the cost by Bargaining. The bargaining power of buyer is high as thereare lot of choice available to the buyer and the service do not vary from onemanufacturer to the other. They force the manufactures to improve the

quality.In case of NANO car the price tag at which it has been offered or the qualityof theNANO car no compromises has been done at any front.

Switching Costs:-If switching to another product is simple and cheap the customers does notthink much before doing it.

In case of NANO car the switching cost from bike to Car is too high. Thusincreasing the demand of the car many fold.

Brand Image / Identity:-The brand image of the TATA and the segment in which the NANO has beenthe most attractive thing in the entire package.



How Much Power Do Your Buyers

Have Over You?

Buying Volumes:-

If the buying volumes are high the buyers have control over product.

In case of NANO car or any car industry the buyer will not buy in

Volumes.

Differentiation:-If the product differentiation is less buyers have a power to purchase the productof his choice based on the price & quality.

In case of NANO car the major differentiation is the Price.

Price Elasticity:-If the Price of a product is elastic the Buyers have the Bargaining Power.

In case of NANA car the price is elastic, as if the price increases the demand willdecrease.



C ompetitive Rivalry



The intensity of rivalry between competitors in

an industry will depend on:

The structure of competition The structure of industry costs

Degree of differentiation

Switching costs Strategic objectives

Exit barriers

Competitive Rivalry between ExistingCompetitive Rivalry between Existing

PlayersPlayers



References

1) http://www.ces.purdue.edu/new2) http://emerging- entrepreneurs.blogspot.com

3) Tata Motors website.

Poters Five Forces - Competitive Rivalry - Prerna

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