Which of Porter’s Five Forces Have the Most Significant Negative Impact on US Beer Industry’s...
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Which of Porter’s Five Forces have the most significant negative Impact on US beer industry’s attractiveness: 1) Bargaining Power of Buyers A saturated market may limit customer taste, because the firms in the industry focus more on a general taste of customers in order to compete on a larger segment and therefore earn more revenue, and are less interested in venturing in smaller segments taking into account the additional risk and opportunity cost of capital. By doing so, the product features are fairly similar, making it easy to substitute (switching cost close to 0), and also making vertical dimension differentiation more difficult to achieve. As a consequence, premium pricing is harder to be implemented by firms. Thus firms seek differentiation advantages by other means, which lead them to more costly strategy investments. 2) Thread of Entrants/Substitutes We consider two cases: Within the industry and outside it. The market has a consolidated leader (Budweiser) and high competition among smaller firms/brands (Table from case). Also, to threads of entrance, is added the fact that firm compete more aggressively on a perception level, requiring them to spend considerable amounts on advertising. For a new entrant, most likely their product strategy would revolve around a particular niche, meaning a product with particular characteristics which match a specific image, in an attempt to exploit horizontal differentiation by trying to set a new trend and opening up a new market segment (Craft Beers). Outside the industry there is the threat of other alcoholic beverages gaining market share like Wine and Spirits (Pie Chart from the case). 3) Bargaining Power of Suppliers
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beer industry analysis
Transcript of Which of Porter’s Five Forces Have the Most Significant Negative Impact on US Beer Industry’s...
Which of Porters Five Forces have the most significant negative Impact on US beer industrys attractiveness:
1) Bargaining Power of Buyers A saturated market may limit customer taste, because the firms in the industry focus more on a general taste of customers in order to compete on a larger segment and therefore earn more revenue, and are less interested in venturing in smaller segments taking into account the additional risk and opportunity cost of capital. By doing so, the product features are fairly similar, making it easy to substitute (switching cost close to 0), and also making vertical dimension differentiation more difficult to achieve. As a consequence, premium pricing is harder to be implemented by firms. Thus firms seek differentiation advantages by other means, which lead them to more costly strategy investments.
2) Thread of Entrants/SubstitutesWe consider two cases: Within the industry and outside it.
The market has a consolidated leader (Budweiser) and high competition among smaller firms/brands (Table from case). Also, to threads of entrance, is added the fact that firm compete more aggressively on a perception level, requiring them to spend considerable amounts on advertising. For a new entrant, most likely their product strategy would revolve around a particular niche, meaning a product with particular characteristics which match a specific image, in an attempt to exploit horizontal differentiation by trying to set a new trend and opening up a new market segment (Craft Beers).
Outside the industry there is the threat of other alcoholic beverages gaining market share like Wine and Spirits (Pie Chart from the case).
3) Bargaining Power of Suppliers For reasons mentioned above, it is hard for a new firm to establish its own distribution channel and to exploit a competitive advantage from it, considering it is hard for companies to achieve differentiation advantages through advertising and brand equity due to high cost of investment. Therefore, new firms often organize themselves and create their own distributions channel, which in the short term can be seen as an additional expense.
