Management Consulting/business

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Question
how do sugarcane firms like Mumias in kenya apply the concept of porter's forces in their marketing strategies

Answer
Mumias  maintains its dominance in the sugar Manufacturing sector with a 60% market share  and dominates  the  distribution with  effective  distributors  channel.

The Five Forces model of Porter is an Outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value) of an industry structure. The Competitive Forces analysis is made by the identification of 5 fundamental competitive forces:

  1. Entry of competitors. How easy or difficult is it for new entrants to start competing, which barriers do exist.
  2. Threat of substitutes. How easy can a product or service be substituted, especially made cheaper.
  3. Bargaining power of buyers. How strong is the position of buyers. Can they work together in ordering large volumes.
  4. Bargaining power of suppliers. How strong is the position of sellers. Do many potential suppliers exist or only few potential suppliers, monopoly?
  5. Rivalry among the existing players. Does a strong competition between the existing players exist? Is one player very dominant or are all equal in strength and size.

Sometimes a sixth competitive force is added:

  6. Government.

Porter's Competitive Forces model is probably one of the most often used business strategy tools. It has proven its usefulness on numerous occasions. Porter's model is particularly strong in thinking Outside-in.
 

1. Threat of New Entrants depends on:

   * Economies of scale.
[LARGE VOLUMES  ARE  REQUIRED  AND MUMIAS  DOMINATES  WITH  60%  MARKET SHARE]
-----------------------------------------------------------------------------------
   * Capital / investment requirements.
[CAPITAL  INTENSIVE  BUSINESS  AND  HENCE ONLY FEW  CAN ENTER  THE  MARKET]
---------------------------------------------------------------------------------
   * Customer switching costs.
[IT IS  VERY EXPENSIVE   TO  BUY CUSTOMER  LOYALTY]
-------------------------------------------------------------------------------------------
   * Access to industry distribution channels.
[ THIS  PRODUCT IS  SOLD ONLY  THRU  LARGE DISTRIBUTORS]
-----------------------------------------------------------------------------------------
   * Access to technology.
[CHANGING  TECHNOLOGY   WOULD  MAKE  IT  HARD  FOR  NEW  COMERS]
------------------------------------------------------------------------------------------------------
   * Brand loyalty. Are customers loyal?
[THERE  IS SOME  BRAND  LOYALTY  AMONG  CUSTOMERS ]
-----------------------------------------------------------------------------------------------
   * The likelihood of retaliation from existing industry players.
[THE  CURRENT  INDUSTRY  PLAYERS  GIVE  THE  NEW  ENTRANTS
A  ROUGH  TIME---BY  PRICE  CUTTING/  BETTER  SERVICE
AND  ADDITIONAL   COMFORTS]
------------------------------------------------------------------------------------------
* Government regulations. Can new entrants get subsidies?
[WITH THE  LIFESTYLE CHANGES  AND CHANGING  ECONOMIC  CONDITIONS
THE  GOVERNMENT  IS   ENCOURAGING  NEW  ENTRANTS.]
======================================================


2.Threat of Substitutes depends on:

   * Quality. Is a substitute better?
[QUALITY  IS IMPORTANT  AND  HENCE  SUBSTITUTE  PRODUCTS   HAVE  SHORT LIFE]
-----------------------------------------------------------------------------------
   * Buyers' willingness to substitute.
[SOME  BUYERS  WILL  SHIFT  TO  SUBSTITUTE, IF  THE  PRICE  IS RIGHT]
--------------------------------------------------------------------------------------
   * The relative price and performance of substitutes.
[ IF  THE  PRICE  IS  LOW,  THE  SERVICE  OFFERED  WILL  BE  LOW AS  THE  QUALITY WILL BE LOW]
--------------------------------------------------------------------------------------------------------------------
* The costs of switching to substitutes. Is it easy to change to another product?
[THERE  WILL  SOME  BUYERS/  BUT  CHANGING  THE  BUYERS  WILL  BE  DIFFICULT]
IN  THE SUGAR   INDUSTRY,  IT IS  EASY  TO  GET  NEW  CUSTOMERS  THAN
SHIFTING   THE  LOYALTY  OF  THE  ESTABLISHED  USERS.
==========================================================

3.Bargaining Power of Suppliers depends on:

   * Concentration of suppliers. Are there many buyers and few dominant suppliers?
[THERE  ARE A  LARGE  NUMBER  OF  USERS / FEW  SUPPLIERS]
---------------------------------------------------------------------------------------------------
   * Branding. Is the brand of the supplier strong?
[BRAND  IS  A  STRONG  FACTOR  WITH  THE  SUPPLIER]
-------------------------------------------------------------------------------------------------
   * Profitability of suppliers. Are suppliers forced to raise prices?
[ SUPPLIERS  RAISE  PRICES  DURING   THE  PEAK  SEASON ]
-------------------------------------------------------------------------------------
   * Suppliers threaten to integrate forward into the industry (for example: brand manufacturers threatening to set up their own retail outlets).
[SUPPLIERS  PREFER  KNOWN DISTRIBUTION    OUTLETS]
------------------------------------------------------------------------------------------------
   * Buyers do not threaten to integrate backwards into supply.
[NO,  THE  BUYERS  CANNOT   INTEGRATE  BACKWARDS INTO  SUPPLY]
------------------------------------------------------------------------------------------
   * Role of quality and service.
[ QUALITY  AND  SERVICE  PLAY  AN  IMPORTANT  PART]
--------------------------------------------------------------------------------------------
* Switching costs. Is it easy for suppliers to find new customers?
[IT IS  NOT  VERY  EASY. THE  SUPPLIERS  HAVE  TO  PROSPECT
AND  CULTIVATE  CUSTOMERS]
=========================================================

4. Bargaining Power of Buyers depends on:

   * Concentration of buyers. Are there a few dominant buyers and many sellers in the industry?
[ NO.THERE  ARE  MANY  BUYERS--FEW  SUPPLIERS]
---------------------------------------------------------------------------------------------------
   * Differentiation. Are products standardized?
[ THERE   ARE  SIGNIFICANT  DIFFERENTIATION  AMONG  THE  PRODUCTS]
---------------------------------------------------------------------------------------
   * Profitability of buyers. Are buyers forced to be tough?
[ MOSTLY   THE  RECOMMENDED  PRICE]
------------------------------------------------------------------------------------------
   * Role of quality and service.
[ QUALITY  AND  SERVICE  PLAY  AN  IMPORTANT  PART]
-------------------------------------------------------------------------------------------------------
   * Threat of backward and forward integration into the industry.
[ NO----]
-------------------------------------------------------------------------------------------
* Switching costs. Is it easy for buyers to switch their supplier?
[  YES.........]
=======================================================

5.Intensity of Rivalry depends on:

   * The structure of competition. Rivalry will be more intense if there are lots of small or equally sized competitors; rivalry will be less if an industry has a clear market leader.
[THERE  ARE  BIG  PLAYERS  ONLY------MUMAIS  IS  THE  LARGEST]
--------------------------------------------------------------------
   * The structure of industry costs. Industries with high fixed costs encourage competitors to USE  at full capacity by cutting prices if needed.
[THE  INDUSTRY   HAS  A  HIGH  FIXED  COST ]
-------------------------------------------------------------------------------------
   * Degree of product differentiation. Industries  HAVE   typically have greater rivalry.
[ THE   BRAND  PLAYS  A   SIGNIFICANT  PART]
-----------------------------------------------------------------------------------------
   * Strategic objectives. If competitors pursue aggressive growth strategies, rivalry will be more intense. If competitors are merely "milking" profits in a mature industry, the degree of rivalry is typically low.
[SUPPLIERS  PURSUE  AGGRESSIVE  GROWTH  STRATEGIES]
-------------------------------------------------------------------------
* Exit barriers. When barriers to leaving an industry are high, competitors tend to exhibit greater rivalry.
[ THERE  VERY  LIMITED  BARRIERS  FOR  EXIT]
======================================================

Strengths of the Five Competitive Forces Model. Benefits

   * The model is a strong tool for competitive analysis at industry level. Compare: PEST Analysis
* It provides useful input for performing a SWOT Analysis.

Limitation of Porter's Five Forces model

   * Care should be taken when using this model for the following: do not underestimate or underemphasize the importance of the (existing) strengths of the organization (Inside-out strategy). : Core Competence

   * The model was designed for analyzing individual business strategies. It does not cope with synergies and interdependencies within the portfolio of large corporations. : Parenting Advantage

   * From a more theoretical perspective, the model does not address the possibility that an industry could be attractive because certain companies are in it.

   * Some people claim that environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation. : Disruptive Innovation

* Sometimes it may be possible to create completely new markets instead of selecting from existing ones. : Blue Ocean Strategy
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