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In a competitive environment There are many factors that influence the way a company is run and organised, how these factors are managed will determine whether a business will be successful or not. Business are always creating strategy inorder to enhancing there strengths, create new opportunities and limiting potential harmful threats. A good analytic tool for helping business to become successful with in a competitive environment is the Porter's 5 Forces. Ports fives force was developed in 1979 by Michael porter which involves assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces which consist of supplier power, buyer power, competitive rivalry, threat of substitution, and threat of new entry all of which determine the competitive intensity and attractiveness of a market. These five forces enables businesses to recognise there strengths of there current competitive position, and the strength of a position which they wish to enter. (Mindtools.com, 2019)
Through out this essay I will be applying the five forces model to sweaty Betty a sports Appel business, where by it will enable us to see how useful this tool is, in clearly outlining business strengths, weaknesses and area of improvement enabling them to be the most successful and profitable they can be with in a competitive environment. The company Sweaty Betty’s was founded in 1998 by Tamara Hill-Norton. Driven by the lack of uninteresting sportswear for women. Tamara opened sweaty Betty in London with five niche sportswear boutiques. And now expanding to 50 stores in the uk and seeking for US expansion. There unique selling point are their exclusive fabrics and designs but also there support for charitable organisations and there passion for female empowerment, Inspiring women from fitness and beyond’ (Sweaty Betty 2018).
The threat of new entrants
The first force in which I will be discussing is threat of new entrants. This is defined as ‘an industry bringing new capacity, the desire to gain market share, and often substantial resources’ (Porter, 1979).
The easier it is for a competitor to enter, the greater the risk of a business’s market share to be reduced. The impact of the new threat will depend upon the initial barriers which are present and also how existing competitors will react in response, to the new entrant. barriers to entry consist of , economies of scale, capital, cost advantage, assess to distribution channels and Government policy and strong brand recognition.
The demand for sport ware has increased rapidly over the last couple of years, leading to many business wanting to enter this market. When looking at the threat of entry into this market the advantage is that the amount of capital requirements not needing to be high, making it easier for companys to start small and develop with accessible distribution channels like online sales or even opening a small fitness studio with a shop. Product differentiation is therefor of high importance, which may involve creating new designs, branding, and the quality and texture of the materials. Smaller companies may feel under threat as larger firms may wish to enter this market as sourcing costs and manufacturing cost are reduced with scale futhermore economies of scale is increase when it comes to producing sports apparel. Introduction of new and expensive technology may allow wealthier entrants to be able to afford this before sweaty Beaty can giving them a stronger competitive advantage. Price wars may start to arise between sweaty Betty and new entrants, which could potentially lead to sweaty Betty being forced to lower there prices prices in-order to maintain sales.
The second force in which I will be discussing is competitive rivarly this is defined ‘ the degree to which rivalry drives down an industry’s profit potential’. (Porter, 2008).
This force examines how intense the competition currently is in the marketplace, which is determined by the number of existing competitors and what each can do.
Rivalry competition is high when there are just a few businesses equally selling a product or service, when the industry is growing and when consumers can easily switch to a competitor’s offering similar products for lower prices. With in the sports apparel industry there is strong competition concerning price, design, technological fabrics, features, branding and in-store experience. For sweaty Betty competition is high as they compete with large global brands such a nike and Adidas.It is also exposed to rapid changes in customer preferences and technological development. If sweaty betty fail to adapt quickly, they are in danger of losing market share. Having a strong brand identity can save there brand from inability to adapt as quickly as other players enter the market, however they will always have a underlying uncertainty as to weather customers will stay lloyal to there brand or not. Sweaty Betty is a premium brand therefor customer pay high prices for there products, if larger more established brands start producing similar products at lower prices there is the possibly customers will switch brands to get better value for there money. Furthermore As global awareness rises, more competitors will offer organic products at competitive prices which may result a decline in purchases from customer, reducing their revenue and income for the business. (Wishlow, 2010)
Bargaining Power of Buyers
Thirdly the power of buyers is defined as, Powerful customers can capture more value by forcing down price, demanding better quality or more services’ (Porter, 2008).
Consumers have power when there aren’t many of them but there are a large amounts of sellers. as well as when it is easy for customers to switch from one business’s products to another. Buying power is low when the seller’s product is very different from any of its competitors. (Wishlow, 2010) sweaty Betty bargaining power of buyers is high as within the sports ware industry it is easy for consumers to switch form one brand to another. Therefor it is essential for sweaty Betty to create a strong brand image and customer loyalty to prevent consumers in doing this.The repercussions of customers switching from sweaty Betty to other brands may force sweaty Betty to lower there prices in-order to maintain customers and keep sales flowing.Sweaty Betty focus a lot of time and attention on making women feel empowered and good in them selves therefor there relation ship with customers is very strong, if there customer service depleted this may harm there brand image and customer may look else where to buy there gym ware.Furthermore when looking the the power of the buyer consumers are most likely to inform themselves online before buying a product, this tends to be extremely sensitive to quality standards and alike. There is also a possibility with smaller companies, buyers may over look them and rather buy from the bigger more establish brands. Therefor a large part of there business plan will be looking at what the buyers wants inorder for there needs and wants to be met, not only will this increase the repeat of purchases from existing customers but also give them the opportunity grown and expand through word of mouth.
Bargaining Power of Suppliers
Fourthly the definition for the powers of supplies is defined as ‘can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services’ (Porter, 1979).the fewer suppliers the more power they have over businesses, suppliers have the potential to raise its prices, which in turn would lower business profitability. Businesses are in a better position when there are a multitude of suppliers. Furthermore suppliers tend to offer limited amounts of flexibility and could potentially refuse to supply new products. (Wishlow, 2010) For sweaty Betty this might be a problem as they are always looking to bring out new products to keep up with the latest fashionable trends. Furthermore with large global companies in the same market such as nike and Adidas having greater amounts of power with suppliers, suppliers are more likely to meet there needs of them rather than sweaty Betty who have less much power over there suppliers. If sweaty Betty were ever to look to switch suppliers the switching costs are high potentially putting them in a difficult financial position.
Threat of Substitutes
The final force in with I will be discussing is the threat of substitutes the force is defined as ‘A substitue performs the same or a similar function as an industry’s product by a different means’ (Porter, 2008). This force is a high threat when its easier for consumers to switch from a business’s product or service to other competitors, It looks at the number of competitors, how their prices and quality compare to there competitors in the same industry how much of a profit those competitors are yielding, which would then determine if they can lower their costs even more. The threat of substitutes is created by buyers wanting to change and switching costs, both short and long-term. (Wishlow, 2010) If sweaty beaty were to bring out a new products appealing to customers, creating large amount of sales for the business, other companies may recognise this and start copying there products by bring out similar fitness gear that serve the same wants needs for customers however at a much dearer price. Sweaty Betty could prevent this from occurring if customers have strong brand loyalty and feel the substituted products will not be of the same quality as what sweaty Betty provide. there is also the possibility The introduction of an organic range many cause a substitutes of needs and may be something people view as unnecessary. Furthermore Non organic products can have the same qualities as organic therefor may be seen as not an essential product to have.
In conclusion porter 5 fives force is a simple model but very effective, it allows for strategic planning and can help a company determine wether or not to enter an industry or market by evaluating the potential for profitability. when applying it to the business of sweaty Betty it has allowed me to conduct an in-depth analysis of the competitive structure of there industry also seeking out there strength, weakness, opportunities and threats in which they are faced with, acting upon these factors appropriately will help them retain customer, keep profitable and remain competitive. By analysing each of the fives force in depth, has allows us to see clearly which treat is the most damaging towards the business and would need to be acted upon first.
The main concern for me was threat of competitive rivalry where by large and more established brands may begin to sell similar products offering organic ranges at competitive prices this may result in customer loss therefor a reduction of income and profits for the business.
However we do need to take into account the limitations of porter fives forces, firstly the purpose of this model is to create ideas and underline key concerns. False conclusions may be developed when models are taken as certain as the model simply shows the attractions to a given industry and not designed to decide optimal industries with certain outcomes. Furthermore porters model is fundamentally static, representing only aspects of the present time. As strategic planning involves adaptability and long term objectives porters model is too static to be relied upon outside of short to medium term objectives. All in all there are many advantages to porter five forces but also limitations to one must understand how it is designed to be used in the most effective way through recognising the limitations of the model in-order for business to use the it to there competitive advantage.
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