Question

what is the Five-force analysis of the concentrate producers (CP's) (When evaluating the five forces, use “high”, “medium” or “low”)?

Answer 1

Five force analysis helps in analyzing the amount of competition that exists in monopolistic to oligopolistic industries. This is because only in such industries there is an opportunity to earn profit above industry average. The effect of all such forces eventually determine overall profitability of the business. In the concentrate producers industry these forces are analysed : -

1. Threat of entry of new producers: Market has free entry and exit and there is negligible sunk cost so there is always threat of new producers to come up with different mix and brand. However large brands who have well established supply chains make it difficult for new entrants to gain wider access to market and

2. Industry rivalry: Rivalry between top dominant market leaders who have significant market share is high.

3. Bargaining power of suppliers: threat from suppliers is low as suppliers are in huge number and they have pricing contracts with CPs and have to adhere to their terms and conditions. Even if they try to exercise some power over price and quality of the product CPs can easily find alternatives.  

4. Bargaining power of buyers : Since there are large no. buyers who buy in bulk and then redistribute to retail customers, such buyers like supermarket, convenience stores, inline markets etc, have high bargaining power which make such producers offer bulk discounts at competitive rates.

5. Threat of substitutes : This industry has large number of substitutes and branded concentrate customers hsve to incur huge expenses on advertising and diversification to reduce the affect of substitute threat.