Porter’s five force industry analysis and target markets, market positioning, market entry strategy
Porter’s Five Force Industry Analysis: New Zealand’s Market Case
According to Porter (1980) five force industry analysis models, prudence requires any organization that plans to spread its operations to newer markets or regions to analyze the levels of risks and degree of market attractiveness before rolling out its operational plan. According to this five force industry analysis, five factors determine the degree of market attractiveness. Low entry barriers in a given market make it easy for the competitors to enter the market, which in turn affects the market’s profitability and attractiveness.
Availability of substitute products in the targeted market increases the probability of consumers to easily switch to other products, therefore, lowering the level of market attractiveness. Great buyers and suppliers bargaining powers in a given market making the market’s attractiveness low; hence, this is not viable option to enter. Last is the level of competition within an industry. What porter refers to as rivalry within the industry equally determines the level of market attractiveness; higher rivalry within the targeted industry lowers the market’s attractiveness.
Below follows New Zealand’s consumer electronics market’s attractiveness levels evaluation in the spectrums of Porter (1980) five forces industry analysis model. According to CBS Interactive Business Network Resources Library (2008, P. 5), Asia-Pacific/Asia consumer electronic market looks more promising compared to other markets in Middle east. For a prudent investor, this is a mere indication, and there is a greater need to assess individual market’s attractiveness before making a concrete decision on rolling out operations in the selected market.
Threat of New Entrants
According to Gully (2008), New Zealand is one of the few countries in the world that has minimal entry requirements for business that wish to set up operations in the country. This testament is further affirmed by inadequate legal frameworks for other forms of operations such as unincorporated joint ventures and acquisitions. These relaxed entry legal frameworks make it easy for new entrants to join the market unscathed. Competition and scramble for customers makes the industry unattractive for investment. This is the reality in the market that Bing Lee has to contend with if it has to roll out its operations in New Zealand.
The relaxed entry barriers may best explain the most recent consumable electronics retail crisis in New Zealand as attested by Peter Anderson, the proprietor of Anderson electrical (Avenell 2012). Anderson claims that everybody in the consumable electronics retail section is struggling with shrinking market share and margins, including giant retail houses like Victoria. JB Hi-Fi (a sister company to Bing Lee) had a sparkling start in New Zealand during its first half of its first year of operations due to its brands’ ability to resonate with New Zealand customers (Avenell 2012). This may serve as a positive early success indicator to Bing Lee, but much needs to be done to ascertain the level of market attractiveness in New Zealand.
Rivalry within Industry:
JB Hi-Fi’s Chief Executive Jerry Smart, during an interview with Radio NZ acknowledges to the fact that, despite their early success, New Zealand’s consumable electronics sector is an aggressive one (Radio NZ 2012). The levels of participants and competition are very huge. According to Porters five force industry analysis model, this makes the market less attractive for new entrants such as Bing Lee. CBS Interactive Business Network Resources Library (2008) puts the number of digital product companies and specialist multiples in excess of 100. This figure gives substantial insight to aspiring market entrants such as Bing Lee.
Threat of substitute goods.
According to Yavas, Verhage and Green (1992), availability of substitute products in the targeted market makes it easy for buyers to switch to other products, making the target market less attractive compared to those with less substitute products. The numbers of consumable electronic participants in New Zealand indicated by the CBS Interactive Business Network Resources Library (2008) speak volumes in regards to the consumable electronics market scenario on New Zealand. The presences of mega multinationals like Toshiba, HP, Nokia, Canon, Panasonic, LG, and Huaiwei among others, paints a picture of the broader product selection basket that consumers have in this region.
In the New Zealand’s consumable electronics market segment, the risk that consumers will change from one product to another is high. They have a wider range of substitute goods to choose from, which works negatively towards a company leveraging on consumer loyalty as a strategic competitive strategy. To illustrate how serious this industry force can affect a business operation, Best Buy, a sister company to JB Hi-Fi and Bing Lee reportedly decided to call it off in China, despite offering individualized services and better shopping experiences than other competitors (Zitan 2011). The closure is attributed to the consumers’ ability to access much cheaper substitute products to the ones offered by Best Buy.
Threat of Buyers bargaining power:
According to Yavas, Verhage and Green (1992), buyers who have stronger bargaining power have the ability to dictate and force down prices of products making operations less profitable, compared to markets with weaker buyers’ bargaining power. There tends to be a trade-off between buyers’ dominance in the market and producers’ dominance in market economics. In some markets, the organizations selling a given product are few and stronger and have the ability to manipulate any of the market mix 4Ps (Monopolistic markets), however, this paradigm shifts when there are many selling companies in a market giving buyers greater power to choose.
By all measures, it is evident that New Zealand’s consumable electronic market sector is dominated by buyers who have great bargaining powers. This finding has implications on Bing Lee’s likely blend of marketing mix strategies to employ if it is to enter into this region. As attested by Peter Anderson, the proprietor of Anderson electrical, prices of consumable electronics have significantly gone down in the recent five years. A TV set that was going for $3,000 five years ago is currently going for $500 (Avenell 2012).
Threat of suppliers bargaining power:
A higher level of suppliers’ bargaining power makes a given market less attractive for investment, when compared to markets with lower suppliers’ bargaining powers. The impact of suppliers’ bargaining powers on the operations of existing firms in the consumable electronic market segment in the New Zealand market is not clearly evident. Essentially, Porter (2008) five force industry analysis model dictates Bing Lee to weigh all the above five factors and on average determine the attractiveness of the New Zealand market. It is evident from the CBS Interactive Business Network Resources Library (2008) that New Zealand promises a bright future in the consumable electronics sector, but also poses a lot of challenges that Bing Lee will have to evaluate before rolling out their strategies and operations………