SWOT analysis + external influences (continued)
the advantages and disadvantages of operating in a monopoly market
advantages for the employers
- higher profit margins
- a lack of competition means that customers are likely to purchase products from your brand
advantages for the customers - monopoly markets will offer services and products efficiently and effectively
- since profits are high, business may be able to bring out new products + add value
disadvantages for the employers
- existing pressure from customers - the inability to meet needs
- dis-satisfied customers because of a low quality product
disadvantages for the customers - business may charge higher prices and exploit their customers
- little to no investments are made into research + development so this means that potential needs are not being met
Porter's Five Forces: created by michael porter, porter's five forces are a framework for analysing the nature of competition within an industry. Porter claims that every industry is different in terms of: size, structure, customer needs and wants, profitability etc.
industry profits:
summary for an industry with high profits
- weak suppliers
- weak customers (buyers) - they have little influence
- high entry barriers
- few opportunities for substitutes
- little rivalry
summary for an industry with low profits
- strong suppliers
- strong customers (buyers)
- low entry barriers
- many opportunities for substitutes
- intense rivalry
Porter's five forces
- threat of new entrants to a market
- bargaining power of customers (buyers)
- threat of substitute products
- degree of competitive rivalry
- power of suppliers
threats of new entrants to a market:
if new entrants move into an industry they will gain market share + rivalry will intensify
the position of existing firms is stronger if there are barriers to entering the market
if barriers to entry are low then the threat of new entrants will be high, and vice versa
bargaining power of suppliers:
access to suppliers and distribution channels
a lack of acess will make it difficult for newcomers to enter the market
economies of scale available to existing firms
lower unit costs make it difficult for smaller newcomers to break into the market and compete effectively
product differentiation (including brands)
- existing products with strong USP's increase customer loyalty and make it difficult for newcomers to gain market share
bargaining power of customers
powerful customers are able to exert pressure to drive down prices
a great ex. in the UK currently is the dominant grocery supermarkets which are able to exert great power over supply firms
threat of substitute products
a sub. product can be regarded as something that meets the same needs (customer expenditure)
substitute products are produced in a different industry - but crucially satisfy the same customer needs
if there are substitutes to a firm's product, they will limit the price that can be charged and will reduce profits
degree of competitive rivalry
if there is intense rivalry in an industry, it will encourage businesses to engage in
price wars (competitive price reduction)
investment in innovation and new products
intensive promotion (sales promotion and higher spending on advertising)
the main factors that determine competitive rivaly are: brand loyalty, differentiation
determinants of intensity or rivalry:
- number of competitors in the market
- market size and growth prospects
- product differentiation and brand loyalty
- capacity utilisation