Michael Porter’s Five Forces Model In Retail Industry

Under the guidance of: Anand Patil Sir.

Presented By:- Sudheer Kumar. Patil pooja. Shreedhar Bhat.

Introduction:

Michael Porter (1980) considers that rivalry (competition) on the market is result of the five variables or main forces: rivalry level, bargaining power of customers and that of suppliers, the threat of new entrants and of substitute products. These variables are interconnected. They are illustrated in the matrix of the five competitive forces of Porter. These forces are using in several industrial sectors. Like Retails, Telecom, Airline, Pharma etc.

IN RETAIL SECTOR

1.Threat of New Entrants. One trend that started over a decade ago has been a decreasing number of independent retailers.

Walk through any mall and you'll notice that a majority of them are chain stores.

While the barriers to start up a store are not impossible to overcome, the ability to establish favorable supply contracts, leases and be competitive is becoming virtually impossible. Their vertical structure and centralized buying gives chain stores a competitive advantage over independent retailers.

2.Bargaining power of suppliers.

Historically, retailers have tried to exploit relationships with suppliers. Bargaining power of buyers is moderate because of the size and concentration of major retailers. To reduce power and you retain customers, retailers seek to differentiate products and create strong brands. Individual private customers have a relatively low bargaining power in front of large retail chains, however, their power is greater for small retailers, who are less organized.A contract with a large retailer such as Wal-Mart can make or break a small supplier. In the retail industry, suppliers tend to have very little power.

Key points for retailers in bargaining with suppliers

77%64%

55%59%

23%9%14%

3.Power of Buyers.

Individually, customers have very little bargaining power with retail stores. It is very difficult to bargain with the clerk at Safeway for a better price on grapes. But as a whole, if customers demand high-quality products at bargain prices, it helps keep retailers honest.

4.Threat of substitute products.

The tendency in retail is not to specialize in one good or service, but to deal in a wide range of products and services. This means that what one store offers you will likely find at another store. Retailers offering products that are unique have a distinct or absolute advantage over their competitors.

Productivity surplus got through the use of e-commerce, in comparison with the classic model

5. Competitive Rivalry

Is increased by equal size and power of dominant retailers who are pushing to increase market share.The trend of extinction of small retailers through acquisitions, mergers alliances and high cost to exist this market.Among leading group there are More, Reliance store, Big bazar and Flipkart that are dominating the large markets of retail sector in India.

Porter’s five force model

Analysis 5 Forces Analysis

Rivalry among the competitor •Reliance Retail, Aditya Birla Group , Vishal Retail’s, Bharti and Walmart, etc

Threat of entrants • FDI policy not favorable for international players. • Domestic conglomerates looking to start retail chains. •International players looking to foray India.

Bargaining power of supplier •The bargaining power of suppliers varies depending upon the target segment.•The unorganised sector has a dominant position.• There are few players who have a slight edge over others on account of being established players and enjoying brand distinction.

Bargaining power of buyers • Consumers are price sensitive..•Availability of more choice.

Threat of substitutes •Unorganized retail

CONCLUSION:

1.The model of porter led to following conclusion about threat of new entrants, bargaining power of suppliers, bargaining power of customer, the rivalry between existing firms on retail market in Romanian and threat from substitute product.

2.In the retail sector barriers to entry are relatively high.

3.Consumer bargaining power is moderate because size and concentration of major retailers

4.There are many threats on the retail market penetration of large discount stores.

5. E-retailing is also threat to stable trade retailers.6. Rivalry among existing firms in retail market in Romanian

is enhanced by equal size and power of dominant retailers who pressured to increase their market share.

7. The trend of extinction small retailers through acquisitions , mergers or alliances and high cost to exist this market