I’ve provided 2 discussions that need to be responded separately.
1-)The company that I have chosen to evaluate is Walt Disney Company. Porterâ€™s Five Competitive Forces is a tool that allows for the analysis of Walt Disney Company and its competitors (Porter, 1979). Competitive rivalry is a strong force because Walt Disney Company has a competitive stake in multiple industries including filmmaking, theme parks, and retail stores. Walt Disney Companyâ€™s competitors are not exactly small either; for instance, Disneyworld competes with Universal Studios in Orlando, FL, Pixar competes with DreamWorks Animation, and Marvel competes with DC Comic Books. These factors also favor the buyerâ€™s power which is another strong competitive force. Consumers have many choices when it comes to where they want to spend their money and Walt Disney Company and its competitors rely heavily on those decisions.
The threat of new entrants and the threat of substitutions are weak forces for Walt Disney Company. Walt Disney Company does face competition, but that does not mean that the competitors are or ever will be able to offer the imagination, products, services, or trade secrets that Walt Disney Company is able to consistently provide. I ranked suppliersâ€™ power as a weak force too because there are a variety of suppliers for Walt Disney Company to choose from a domestic and international perspective.
2-)Porters 5 forces offers an excellent way for companies to examine themselves and create targeted strategies. The company I choose to analyze this week is Starbucks, one of the coffee giants of the world. Starbucks is certainly a powerful company that has shown continued growth over the years, however without an intelligent understanding of their position in the these five areas, they would not be able to make smart decisions for their growth. Shown below is an analysis of these five forces as they relate to Starbucks.
Threat of new entry (Moderate)
- The market is already heavily saturated and any new companies would be competing amongst the likes of Starbucks, Dunkin, and Mcdonalds.
- Profitability would also likely be an issue for any new companies, as their economies of scale do not match up.
- A company like Starbucks who purchases mass quantities of supplies are able to push favorable pricing upon their suppliers.
- New competitors will not have anywhere near an equivalent share and therefor may be charing just as much if not more to make up for higher supplier costs.
- Trends however tend to dictate new entrants becoming successful and Starbucks is a perfect example of this.
Supplier Power (low)
- While Starbucks focuses on acquiring beans from certain regions, there are many suppliers in each of these regions that can provide the same beans and quality.
- Starbucks offers a lucrative contract to suppliers whereas they are able to sell very large volumes and make far more than they would off other potential buyers.
- Starbucks also negotiates its deals in long term contracts rather than buying as needed. This allows them to have windows built in whereby if an issue occurs when negotiating a new contract the company still has years left on the existing contract to continue shopping around.
Buyer Power (high)
- Starbucks charges a premium for their product in relation to most other coffee retailers.
- Starbucks customers pay the premium to have specific needs meet, which Starbucks is therefor required to understand and provide in order to not risk loss of business.
- It costs nothing for a customer to choose a competitor such as Dunkin over Starbucks, and in fact would allow their costs to be reduced
- Outside of direct to consumer sales, the company also must work with distribution networks such as grocery stores where they are able to negotiate rates at which Starbucks is charged to have their products in stores.
Threat of Substitutes (low)
- Starbucks offerings are so widespread that there are very few substitutes left.
- They offer everything form coffee, to juices, to smoothies, to water.
- The only main risk to call out is that they typically compete with craft breweries and wineries as a place to gather and hang out with people.
Threat of Competition (high)
- While Starbucks manages to sell a wide variety of products, there are still many other choices available on the market
- Starbucks does have an extremely loyal base that represents the bulk of their sales, however there is a segment of consumers who will shop around. Packaged coffee or k-cups sold by the company are also typically in high competition withing grocery stores as they are typically side by side with other premium brands which are just as easy for a customer to choose.
- Chances are on a typical commute a consumer will pass multiple coffee shop options giving them plenty of choices over Starbucks