Question

1. Assume that one of your friends from science faculty wants to establish a manufacturing company in soft drink industry in Turkey. She has a different soft drink formula and thinks that she has access to resources for production. However, she cannot be sure whether the market will be profitable for a new producer or not. So, she asked your help.Before giving advice to your friend, you have decided to do two things: determine market attractiveness and conduct five forces analysis. (For Michael Porter) Study/Lesson: Strategic Management and Business Policy

Answer 1

The term market attractiveness refers to the different opportunites given to any firm by the market by taking into consideration several factors that are present in the market. Market attractiveness describes different possibilities of profit that a firm can obtain in a market place.So after analysing the market potential a new startup will try to enter the market.The different factors are size of the market,the growth rate , competitors, margins and pricing trends and other additional factors.The size of the market is an essential parameter to determine market attractiveness. If the market is large there will be more opportunities to sell the product in the market.This will mean increased profitability.The growth rate is the second factor.If the market is not growing this means that the revenue potential is constant.This will lead to lower share in the market and lower profit.In a business it is necessary to understand who are the real competitors.The profit margins and the pricing trends are very important since revenues are determined by these two.Other factors include assessing thhe transportation infrastructure if the company wants to expand overseas.

Porters five forces help in analysing competition of a business.The five forces are threats of substitute products or services,threat of rivals,,threat of new entrants,bargainingpower of suppliers and bargaining power of customers .profitable businesses will attract new entrants and new entrants will reduce profit . So there should be barriers to entry.A substitute product like coke and pepsi may compete head to head and take a larger share in the market.Bargaining power of customers is high if there are many alternatives and vice versa.Firms can take measures to reduce buyers power like implementing a loyalty program. Suppliers of inputs like raw materials,labor etc to the firm can exert power over the firm when there are few substitutes. Rivalry among competitors can be very strong and profitability in the industry may decrease.