Learning Activity 1 – Naked Wines
Porter’s Five Forces is a business analysis tool that allows business managers and owners to assess various business strategies based on the inherent level of competitive rivalry in a market or industry. This analytical tool has five important components, each of which will be discussed below in relation to Naked Wines’ potential business strategy to conquer its target market.
For the threat of new entry, the most important consideration for Naked Wine would be the specialist knowledge and other edges and advantages that the incumbent industry players have which may hamper its efforts to gain a decent share of the market—something which the dominant players would certainly not like ..
For the Supplier Power, Naked Wines should focus more on its ability to produce substitute products, ones that offer not just lower cost but also higher value products because this is something that would shake up the markets and enable it to capture a significant chunk of the market, at least based on the principles of competitive forces that Porter shared in his work.
For the Threat of Substitution, Naked Wines’ strategic planners should be aware that supplier power and their ability to introduce new and substitute products in their chosen industry is a double edged sword. By the time that they are already well-positioned in the industry, Naked Wines would also be subjected to the threat of substitution that Supplier Power brings and so they have to make sure that they always keep the threat of substitution in check.
For the Buyer Power, Naked Wines has to consider the size of the market that they are trying to penetrate so that they can determine if the market can accommodate the increased capacity that their entrance would lead to as well as other factors that would determine their move’s success such as price sensitivity, product segmentation, and the respective sizes and differences of their competitors.
And lastly, for the competitive rivalry, all of these previously mentioned contribute to the overall level of rivalry in the industry. What Naked Wines should do is to assess these elements of Porter’s five forces collectively and then try to focus on the following: customer loyalty, costs, and product quality.
Porter mentioned certain additions to the list of competitive forces that can affect the success of a firm’s entrant to a new industry. One of the most important of which is the economy (i.e. macroeconomic factors). A larger economy would of course translate to a bigger market which in turn could accommodate a bigger number of industry players.
Political intervention in the form of regulation can also affect Naked Wines’ entrance into its respective industry. If the regulations for new businesses are tight and heavy, this may simply pose as a challenge for Naked Wines and a barrier of protection for the incumbent players.
Learning Activity 2
The product chosen to be discussed for this learning activity was a bottle of beer. The product prices are based on prevailing market prices at the time of writing.
$14.99 per Bottle in Local Supermarkets
$36.98 per 6-can pack in Convenience Stores
$39.99 per 6-can pack in Local Gas Stations
$22.99 per box of beer making mix in Local Supermarkets
The most rational explanation behind the difference in these beer products’ prices is the simple fact that they are essentially different products. The cost curve principle may also explain why they have difference prices. A beer making mix, for example, is cheaper because it is a substitute product and is meant to capture the attention of beer drinkers who drink from the bottle. The principle of cost curve suggests that consumers react to changes in prices—as measured in terms of price sensitivity . Putting that into perspective, the beer making mix would definitely be a good idea to capture a certain percentage of the beer drinking market.
Latoff, R. (2016). Enduring Ideas: The Industry Cost Curve. McKinsey Quarterly, 01.
Porter, M. (2016). How Competitive Forces Shape Strategy. Harvard Business Review, 01-12.