CaseStudy: Five Forces Analysis
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
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.
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
Threat of Substitutes
Numerous players in the market offering label printing services
Over six players offering handheld label printers
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.