CaseStudy: Five Forces Analysis
Unit
Force | Analysis of the factors within each Force | Strength of the Force |
Threat of New Entrants | New entrants had difficulty establishing distribution channels because the players in the industry rely on dealers. New entrants or potential competitors posed no significant threat to the company, since VariCut’s business was positioned in the niche market of electronic label products with special environmental requirements. Economies of scale enable larger firms to enjoy greater profits margins by keeping costs lower than small-scale players. Very low capital requirements | Low |
Bargaining Power of Buyers | Buyers enjoy high bargaining power due to the high number of suppliers in the market such that they demand an unconditional reduction in price by 3% in price every year. Numerous suppliers in the market allowed buyers to bargain for better prices and services. There exist low switching costs for buyers to switch suppliers as indicated by the large number of sellers in the market. Additional service and warehouse services provided to large buyers enabled the VeriCut to charge premium prices thereby reducing buyer bargaining power. | Medium |
Bargaining Power of Suppliers | The cost of raw materials and the cost of labor have been increasing over the years increasing costs to the manufacturer. Suppliers are not willing to serve all possible small orders from VeriCut. Label manufacturing business has more players thereby reducing switching costs | High |
Threat of Substitutes | Numerous players in the market offering label printing services Over six players offering handheld label printers | High |
Intensity of Rivalry | The label printer manufacturing industry face low intensity in rivalry as the handheld VariMark enjoys a strong brand name, better product design, and lower market prices than competition. The print label manufacturing industry faces high intensity competition from numerous players New entrants rely on pricing strategy to enter the market VariCut produces superior quality products print labels that meet special environmental requirements namely heat and resistance to chemicals agents. | Medium High |