Question

What are the Porters Five Factors for Payless Shoe Source?

Answer 1

The Porter’s Five Forces Model illustrates how the competitive landscape in an industry
is impacted by five prominent forces. These forces are:

1. Competitive rivalry or competition (Strong Force/High) : The athletic shoe industry is highly competitive . Move taken by one of the players highly impacts others. This is a non price competition. Eg : Reebok launched Female shoeware which was copied by other brands such as Nike. The following external factors create the strong force of competitive rivalry :

• Low market growth rate (strong force)
• High aggressiveness of firms (strong force)
• Moderate number of firms (moderate force)

2.Bargaining power of buyers or customers (Moderate Force/Medium) : there is less sensitivity to brand recognition and brand loyalty. The high end brands are capable to decide price range for their products. However due to some of the other Entrants in the market like Puma, the bargaining power of customers is gaining some importance. The following external factors contribute to the moderate bargaining power of customers:

• Low switching costs (strong force)
• Moderate substitute availability (moderate force)
• Small size of individual buyers (weak force) 3.Bargaining power of suppliers (Weak Force/Low): There are large number of suppliers that can supply the raw material of similar quality. There is no cost associated with switching between suppliers as the quality remains same. Therefore bargaining power of Suppliers is low. The following external factors create the weak bargaining power of suppliers:
• High overall supply (weak force)
• Large population of suppliers (weak force)
• Moderate size of individual suppliers (moderate force)

4.Threat of substitutes or substitution (Moderate Force/Medium) : there is no substitute for specialized shoes such as athletic , orthopedic or dancing shoes. Further, the substitutes available are of lower quality.

The following are the external factors that maintain the moderate threat of substitution :

• Moderate availability of substitutes (moderate force)
• Moderate performance per price of substitutes (moderate force)
• Low switching costs (strong force)

5.Threat of new entrants or new entry (Weak Force/Low): The industry is dominated by branded products, well recognized patented designs and requires huge capital investment leading to entry barriers.

The following external factors contribute to the weak threat of new entrants :

• High cost of brand development (weak force)
• High economies of scale (weak force)
• Moderate cost of doing business (moderate force)