Saturday, October 16, 2010

How much power each of the 5 forces...

The five forces are buyer power, supplier power, threat of substitute products and services, threat of new entrants, and rivalry among existing competitors. Wal-mart follows the five forces business strategy.

Buyer Power is affected by how big your customers are and how much revenue they constitute as well as other things. For instance Wal-Mart has a lot of power with suppliers because it buys so much of their inventory and is thus a large percent of those companies revenues. It is no surprise then that these companies have lived and died with Wal-Mart's orders and would do anything to protect their business with them. Buyer power has about 55% of the five forces model that Wal-Mart uses, since the Company’s sole purpose is to ensure that its customers are, “Saving Money, Living Better”. Buyer power would also include their employees, in treating them with the respect, giving them support and having an open door policy, you create happy employees which transfers to happy customers.
Supplier power
as there is a high amount of choices to be taken in and they do bring in a lot a supplies. As for a threat of a substitute product, it is high because there are alternative products for sale that can replace another item. As for a threat of a new entrant, Walmart seems to be the Leader in low cost sales so it will not be easy for a new business to come in and challenge Walmarts' ways. Supplier Power estimated percentage would be about 35, while, this percentage appears to be low, in the grand scheme of things is allows Wal-Mart to ensure that their suppliers come from a diverse group that achieves and maintains their high standards of delivering great quality services and products.
Threats of Substitute products and threats of new entrants average around 3%, simply because with Wal-Mart focusing on ensuring that their customers are happy and that their suppliers are delivering quality products at a low cost, they would ensure that they remain ahead of their competitors and in doing so, it would make it difficult for new entrants and the competition to match their prices.
In order to reduce buyer and supplier power, they would have to put a greater emphasis on the threat of substitute products. They would have to look at what are the better and cheaper alternatives on the market and tap into that resource.
Threats of new entry To create entry barriers, they would have to increase market research on what customers are actually purchasing and ensure that they are able to deliver, and become the only person offering that product at a price the customers and afford. Switching costs are easy, once customers realize they are no longer getting value for their money, they would go seek products elsewhere.
Rivalry is how competitive an industry is. For instance, if there are lots of companies selling essentially the same products there will always end up being a price war which will severely hurt the company' profits. Wal-mart has such low prices which has created a problem for years and fierce competition has made it tough for competitors to make a profit.






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