Porter’s Five Forces
Porter’s Five Forces which categories into 5 segments, is a modern competitive strategy to look at the larger value system of activities and actors in order to evaluate the potential of an industry and understand the effective competitive strategies. Suppliers and Buyers, and not only direct competitors, affect both how much value is created and who gets the share of the value created by the value system. Potential Entrants Unilever faces low threat of new entries since the market has been more or less gained Economies of Scale with a few of the big companies like P&G, Kraft and Nestle.
Wtih such barriers to entry, it makes new comers coming into the industry very difficult in terms of survival. High product differentiation enables Unilever to command a price premium while deterring new entrants since their customers recognized their brand names whereas start-up entrants are relatively unknown. Such industry is also capital intensive, requiring big amount of capital to operate. Being capital intensive and existing high switching costs acts as the barriers to exit.
Porter’s Five Forces Essay Example
Bargaining Power of Buyer With intensive rivalry for market share within the big companies within the industry, buyers had gained significant power in deciding which products of which company to choose from. Switching costs are low for buyers since they can easily find substitutes easily, for example a consumer can switch from using Persil Capsules to Ariel Liqui-Tabs (both are liquid detergent in the form of capsules, having Persil manufactured by Unilever and the later by P&G..
Buyers incurred low costs in switching suppliers since they hold more power over them. Bargaining Power of Suppliers Unilever has a low supplier power since it has been believed that a brand manufactured by whichever company does not make a difference and it should not make a difference, because the retailer has to take a decision with regards what is best for their shopper and having brands on the shelves that do not sell does not do anything for the shopper, no matter who manufactured the product.
Since, their business to business customers at the same time still preserve supplier-customer relationship; they too have powers over Unilever in deciding which products they choose to be placed on their shelves. Power of Substitutes With intense competition within the fast moving consumer goods industry by the few big companies, especially P&G, with regards to Unilever’s Home Care and Oral Care products; substitution power of the consumers have increased tremendously.
Although by having product differentiation has created chances for suppliers to command premium pricing, there may be a point where they would hit a saturation point whereby growth will slow down and branding becomes arguably the leading form of product differentiation. With the modern market flooded by all sorts of brands for both Home Care and Oral Care products, substitution is made common among consumers when they take pricing versus quality into consideration. At times in recession, price may make a bigger impact in consumer’s choice.
Power of Other Stakeholders With the recent Melamine contamination case, health and food authorities all over the world has taken a stamp in reducing such health pact on its population by increasing their attention in checks on both Oral Care and Home Care products, even though they are not consumable products. Unilever is also accountable to the shareholders in maintaining a social responsible image. Higher restrictions from government bodies may mean higher cost of production in certain products which may require higher quality ingredients.
More stringent checks may also mean a delay in shipments towards delivery schedules which results in customers dissatisfaction or shelf replacement lead time. Rivalry Among Existing Competitors Unilever is operating within the Fast Moving Consumer Goods industry which is mainly operated by a few large companies like Procter & Gamble (P&G), Kraft and Nestle. Zooming into just Home Care and Oral Care products, there is a fierce rivalry between Procter & Gamble and Unilever. Both companies needed to compete against each other for a bigger piece of pie within the market.