The Five Forces Model was developed by Michael Porter in 1979 as a tool to analyse and classify an industry as well as identify profit potential areas in an industry. The model uses five forces of the industry to help identify three major aspects of an industry; competition, profitability, and attractiveness of the industry Rivalry among existing firms in the confectionery industry is very high + gain market share from their competitors creating new products, changing existing products, or marketing with special offers + Companies in this industry are constantly developing new products to release into the market which creates competition to become the leader in innovation as well as cost and sales Threats of New Entrants (Low) The confectionary industry is a fairly hard industry to start in Firms in the confectionary industry are always competing on price and innovation which makes it hard for small companies to keep up: + the large amount of output + low price of supplies to make the new products Distribution Access and Relationships
Relationships with both suppliers and sellers are important to firms so they can have the best access to new products as well as the best access to buyers of the products Threat of Substitute Products (High) Companies are always thinking of new products to put on the market so they can out-do their competitors have a significant economy of scale entry barrier because large companies exist in the industry that has high production output Specialty chocolate and cocoa products are used as gifts during numerous seasons and celebrations including Christmas, Easter, Halloween, Valentine’s Day, anniversaries and birthdays.
Relative Price and Performance Consumers are always looking for the new best thing. Along with being the new thing, consumers are also shopping on price companies must always be making the best tasting product at the lowest price Keeping costs low on older products is important in the eyes of the consumer. Buyers Willingness to Switch One way to help capture the buyer is by advertisement. Name branding also plays an important role in this because the buyers may not recognise the name or know anything about smaller companies’ quality of product.
Bargaining Powers of Buyers (High) The two key factors that determine the degree of power of the buyers are: Price Sensitivity and Relative Bargaining Power. Price Sensitivity It deals with how far the customers are willing to bargain on price Customers in the confectionary industry include both merchants and actual consumers Firms must have a goal of maintaining low costs; they are forced to compete on price Higher price sensitivity leads to higher bargaining power for the buyer. Relative Bargaining Power A buyer’s bargaining power is determined by the number of customers.
Also, the number of substitutes and the ease of availability to get those products determine relative bargaining power This bargaining power is another reason for the competitive prices of the industry, giving the low cost provider of a product the edge of the competition. Bargaining Power of Suppliers (Low) Bargaining power of suppliers determines how a firm will control cost and profits Firms with a large number of suppliers and substitutes have more bargaining power than firms with a limited number of suppliers.
Suppliers have more power when there are fewer companies and fewer substitutes Suppliers for the industry have little power over price due to the amount of substitutes available in the open market. Conclusion the confectionary industry having high threats in threat of existing firms, threat of substitute products, and bargaining power of the buyer, firms will focus on being the leader in price and innovation over their immediate competitors. Though this competition is strong, it makes firms stronger and often times more profitable because of the amount of products on the market, and price of those products.