Porters 5 Forces of Competition
The state of competition in an industry depends on five basic forces: - customers, suppliers, potential entrants, substitutes & the industry. The collective strength of these forces determines the ultimate profit potential of an industry.
Knowledge of the underlying sources of competitive pressure provides the groundwork for a strategic agenda of action. They highlight the critical strengths and weaknesses of the company, animate the positioning of the company in its industry, clarify the areas where strategic change may yield greatest payoff, highlight the places where industry trends promise to hold the greatest significance as either opportunities or threats.
• Rivalry among existing firms – High. The two-wheeler industry is categorized by intense competition mainly between the three majors – Bajaj Auto, Hero Honda & T V S Motor Co. There are also some small players who are gaining market share such as LML & Kinetic. The industry is constantly witnessing price-cuts, freebies & product launches.
• Threat of Substitute Product – High. The two-wheeler industry face direct competition from the automobile sector. With the increase in disposable income & increase in bank finance people prefer to have cars rather than two wheelers.
Thus the demand for cars affects the demand for two-wheelers. If the demand for cars fall the demand for two-wheelers will rise.
• Barriers to entry –High. The barriers to entry & exit are high. The three big players dominate the two-wheeler sector - Bajaj Auto, Hero Honda & T V S Motor Co.
The investment required to compete with these giants would be significant. Thus it is very difficult for newcomers to enter this sector. The industry attractiveness is low not due to profit margin but due to intense & well established competitors.
• Bargaining power of suppliers – Poor. The two-wheeler industry they rely on only a few selected vendors. Thus the bargaining power is poor. Around 60%-90% of the product is outsourced thus the suppliers have a direct impact on the companies cost & profitability.
• Bargaining power of buyers –High. The bargaining power of the buyers is high. There are a variety of products available to customers to choose from. The customer is treated “as a king”.
The marketers have segmented the market into three categories namely entry level, executive & premium category. It has been observed that companies which have ignored the customers have suffered – Bajaj Auto, which once operated without a marketing department, but instead had a dispatch department. However the rules of the game have changed. The customer should be the focus of all activities. All activities Production & Marketing should be done keeping the consumer in mind.
The state of competition in an industry depends on five basic forces: - customers, suppliers, potential entrants, substitutes & the industry. The collective strength of these forces determines the ultimate profit potential of an industry.
Knowledge of the underlying sources of competitive pressure provides the groundwork for a strategic agenda of action. They highlight the critical strengths and weaknesses of the company, animate the positioning of the company in its industry, clarify the areas where strategic change may yield greatest payoff, highlight the places where industry trends promise to hold the greatest significance as either opportunities or threats.
• Rivalry among existing firms – High. The two-wheeler industry is categorized by intense competition mainly between the three majors – Bajaj Auto, Hero Honda & T V S Motor Co. There are also some small players who are gaining market share such as LML & Kinetic. The industry is constantly witnessing price-cuts, freebies & product launches.
• Threat of Substitute Product – High. The two-wheeler industry face direct competition from the automobile sector. With the increase in disposable income & increase in bank finance people prefer to have cars rather than two wheelers.
Thus the demand for cars affects the demand for two-wheelers. If the demand for cars fall the demand for two-wheelers will rise.
• Barriers to entry –High. The barriers to entry & exit are high. The three big players dominate the two-wheeler sector - Bajaj Auto, Hero Honda & T V S Motor Co.
The investment required to compete with these giants would be significant. Thus it is very difficult for newcomers to enter this sector. The industry attractiveness is low not due to profit margin but due to intense & well established competitors.
• Bargaining power of suppliers – Poor. The two-wheeler industry they rely on only a few selected vendors. Thus the bargaining power is poor. Around 60%-90% of the product is outsourced thus the suppliers have a direct impact on the companies cost & profitability.
• Bargaining power of buyers –High. The bargaining power of the buyers is high. There are a variety of products available to customers to choose from. The customer is treated “as a king”.
The marketers have segmented the market into three categories namely entry level, executive & premium category. It has been observed that companies which have ignored the customers have suffered – Bajaj Auto, which once operated without a marketing department, but instead had a dispatch department. However the rules of the game have changed. The customer should be the focus of all activities. All activities Production & Marketing should be done keeping the consumer in mind.
