Competitive Strategy

5 major forces that determine the level of competitive intensity in industry:-

1. Threats of new entrants.

For new entrants, how easy it is or difficult to compete and barriers that exist?

2. Threat of substitutes products or services.

For product or service, how easy it can be substitute especially making it much cheaper?

3. Bargaining power of buyers.

The position of buyers, how strong they are and can they work together to order larger volumes?

4. Bargaining power of suppliers.

The position of suppliers, how strong they are and how do potential suppliers exists? Does certain suppliers monopoly on certain products?

5. Rivalry among the existing firms in the industry

Competition between existing players, does it exist and how strong? Is one player very dominant or equal in strength and size?

With relevance to retailing industry:-

1. Threat of new entrants.

Nowadays it is much easier for new companies to enter this industry and it creates bigger competition among them. Independent retailers are getting smaller in sizes compare to chain stores. Majority of retailers are chain stores. Setting up chain stores is much easier because they can get supply contracts easier and because of their centralized, it creates a competitive advantage over independent retailers. New entry of competitors bring new capacity and desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. They can leverage existing capabilities and cash flows to shake up competition by diversifying products or services.

Factors affecting the threat of new entrants:-

- Regulations or patents not used to protect processes. If licenses and permits required, existing retailers enjoy some protection from new entrants.

- Not enough brand loyalty. Without strong brand loyalty, potential competitor can easily enter the industry.