Porter’s Five Forces Model
Michael Porter’s Five Forces model gives a strategic insight to the firm. It considers the five forces necessary to create a competitive advantage. This model helps the strategic manager to understand where power lies, and helps in creating sustainable competitive advantage. The analysis of foot wear industry according to the Porter’s model is given below:
Threat of New Entrants
The threat of new entrants in the footwear industry is high. There are a few entry barriers. The government regulations are few. Moreover, the inputs are easily accessible. It is not tough to arrange workforce, technology, raw material and expertise. However, advanced technology can lead to the economies of scale and cost reduction. It is an edge over the others players as well. Moreover, the industry is dominated by few large players having a strong brand identity. These players may pose difficulties to the new entrants in getting a market share.
Threat of Substitutes
The substitutes are similar or nearly similar products that serve the purpose of the customer. The substitutes in the footwear industry are easily available except for a few products. The customers can wear sandals instead of casual shoes. However, for some products like athletic shoes there are no substitutes. Therefore, the threat of substitutes in the shoe industry is moderate.
Bargaining Power of Suppliers
The raw material is not very unique. Most of the products of this industry have leather as an integral part. There are a lot of suppliers of leather and other raw materials used in the production of shoes. The companies like Nike, Adidas can purchase the supplies form any supplier that meet a certain quality criterion. Therefore, the power of the suppliers in the footwear industry is low. The companies also outsource the production to different players depending upon the seasonal fluctuations and changes in the trends. For example, different companies outsource the production of soul to small companies
Bargaining Power of Buyers
The behavior of consumer is ever changing due to the changing economic conditions and lifestyles. The customer is becoming more aware to the changing fashion trends. The industry is highly competitive as well. The saturation in the market is increasing as sales are decreasing globally. The customer is becoming more aware and intellectual and their needs are becoming more specialized. They also get various kinds of promotions and discounts. The economic conditions are getting worse and the unemployment rates are also increasing particularly in Europe. Therefore, people spend more wisely and choose with more discretion. All these factors lead to a high bargaining power of the buyer in the footwear industry.
Rivalry among Brands
The rivalry among the footwear brand is high. There are a number of players in the footwear industry competing with each other. A few prominent names are Nike, Puma, Adidas, Bally and Eco etc. The companies are now changing their preferences and are placing more emphasis on non-price factors like quality, design and custom products tailored to the customer needs. The companies are following product development strategy and introducing new product lines. The brand loyalty and image is becoming very important. Therefore, companies are spending much on the advertising and promotional activities to increase customer loyalty. Moreover, companies are increasing in the size through integration strategies to gain control over the market. For example, Adidas has acquired Reebok to compete with Nike
References
- Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213-229.
