The success of a business is guaranteed when all the stakeholders offer it a healthy environment. Players like the government, investors, customers, competitors, and employees are indispensable aspects that determine the success of a business. There is a need for a healthy relationship amongst stakeholders to ensure the smooth running of organisations. Michael Porter identified five key aspects that are important in explaining the structure of organisations. He referred to these aspects as forces that shape the activities of businesses and regulate their behaviour. These forces are the bargaining powers of suppliers, bargaining powers of buyers, threats of new entrants, the threat of substitutes and rivalry amongst competitors. This discussion examines the application of Porter’s five forces in a grocery delivery business.
Bargaining Power of Suppliers
An investment is a collection of financial and human resources that are combined to convert raw materials into finished goods or offer services to clients. Investors must pay for the time, energy and other inputs to ensure a business is operational. The profits that businesses generally are proportional to the expenses incurred in acquiring labour or raw materials used in the production process. The bargaining power of suppliers should be lower than that of a business to ensure fewer expenses are used to convert raw materials or labour into finished goods and services respectively. For instance, a grocery delivery business obtains goods from farmers and other producers. The prices of these goods should be controlled by the business if it wants to generate profits. However, if the suppliers control the pricing, the business will be forced to incur huge expenses in acquiring its supplies. A balanced power of the supplier means that both parties (supplier and grocery delivery business) get profits because of the standardised prices of goods.
Bargaining Power of Buyers
There cannot be any business without customers because they are the engine that drives investments. Buyers offer market and pay for goods or services produced by a business. Businesses should ensure they price their goods and services within the powers of buyers. Very high prices discourage buyers from buying goods because they cannot afford them. On the other hand, moderate prices attract customers and retain them because they know they can afford to pay for the goods or services offered by a business. However, too low prices may compromise the quality of goods or services produced by a business and force customers to keep away from substandard products. A grocery supplier cannot offer very cheap prices for goods because customers will doubt their qualities. Investors should conduct surveys and identify the correct prices of goods or services so that their products do not cost too expensive or cheap.
The threat of New Entrants
Successful businesses attract investors in an industry because it is perceived to be profitable. The threat of new entrants refers to the market instability occasioned by an increase of investors in the industry. Some new entrants have enormous capital and experience in other fields and may carry these strengths and use them to destabilise markets. Low start-up costs, lack of regulations and reduced customer loyalty give more powers to new entrants to succeed and offer stiff competition to veteran investors. In addition, minimal economies of scale and easy access to clients and inputs put existing businesses at risks of collapsing or reduced profitability when new entrants strike. The grocery industry is volatile, and new investors can easily enter and control it. Companies can reduce the threat of new entrants by enhancing their brand images and winning customer loyalty. In addition, they can utilise patent rights to protect their products and services and block new entrants from imitating them. Lastly, they can create alliances with companies that produce complementary goods to eliminate room for cheap competition bought by new entrants.
Threat of Substitutes
Substitutes are products or services that can perform similar roles in the absence of each other, even though they are produced by different companies and do not have similarities. Substitutes are serious threats to businesses because most of them are cheaper and available in the market. Modern technology has created room for innovative investors to explore different markets and introduce new products. For instance, grocery delivery faces stiff competition from genetically modified products that are cheaper and available in all markets. The threat of substitutes becomes lethal due to the use of poor branding and marketing techniques in a market that does not have strong customer loyalty. In addition, companies that produce goods that do not have real benefits to customers may fall victim to this threat. Proper advertising, labelling, branding and keeping customers informed about the latest changes in the qualities of a product are the best ways of fighting this threat.
Competition amongst Rivals
Competition from rivals is the main threat that existing businesses face in their daily activities. Threats from competitors become stiff when there is a shrinking or slow market that does not promote quick stock turnover. In addition, this threat occurs when there is no differentiation, and almost all businesses produce similar goods. Sometimes the high costs of production and the short lifespan of commodities force businesses to use complicated tactics to remain relevant in the market. In addition, some investors have a passion for leading others and ant to stay at the top regardless of the profits they generate. Stiff competitions complicate exit plans and make them expensive. A grocery delivery business may fight this threat by focusing on a unique supply sector. For instance, an investor may decide to supply naturally produced fruits and vegetables that are more attractive than modified ones. The supplier may decide to build a strong relationship with customers and win their loyalty to ensure competitors do not sway them.