вторник, 20 марта 2012 г.

Porter’s Five Forces Analysis

1)      New entrants. Moderate to high.
·         The existence of barriers to entry. Almost no barriers except some moderate capital requirements.
·         Switching costs or sunk costs. No serious switching costs exist among customers. Brand loyalty is relatively low.
·         Capital requirements. There is no need for huge capital requirement to start producing your clothes line, but there is one to build your own distribution and to advertize your brand. These two activities require some money.
·         Access to distribution. It is hard to build a strong brand using clothes retailers, so one should built its own distribution network including own shops or use e-commerce.
·         Industry profitability. Industry is quite profitable, so that entrants appear quite often.
2)      Substitution. No substitutions for clothes. Clothes are used for centuries! That makes rivalry more intensive. However, there is substitute to retail chain, it is e-commerce. In order no to lose power many companies have their own sites. Apparel is not an exception.
3)      Power of customers. Moderate. Customers can’t put firm under serious pressure. There is a huge amount of customers and each buys a small amount, so the only threat is price sensitivity. And it makes sense. Due to absence of high brand loyalty customers are quite price-sensitive, so it gives them power. 
4)      Power of suppliers. Low to moderate. There is a lot of suppliers of raw materials in this industry, but nonetheless it takes some time and money to switch to another supplier. Uniqueness of the materials is low, so all suppliers are quite the same.
5)      Direct competition. High. It is the main factor in the industry. In the modern market it is really hard to attract new customers. Advertizing costs a lot and furthermore, it is hard to create really attractive advertizing, to create something really new. There are a lot of brands existing in the market. They try to differentiate themselves in order to find their niche and decrease competition, but nonetheless in every niche there are 3-5 direct competitors of different size, but in some locations there are only 1-2 firms and so these locations are quite attractive to the new entrants.
Competition primarily based on the customer image that firm created and quality, price is the second thing (I mean +-15% of the price, of course difference in several times makes sense). E-commerce also forces competition because it seriously increases availability of the product in any location. 

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