Michael Porter's Five Competitive Forces

Michael Porter's five competitive forces relates to any and all markets. I believe that in the fragrance business, the five forces are very visible. The forces are the threat of new entrants, the bargaining power of the suppliers, the rivalry among existing competitors, the bargaining power of buyers and the threat of substitution of products and/or services and market segments.

There are many companies out there today that make fragrances but there are always firms from other markets trying to get in. Ed Hardy, GAP, and Abercrombie and Fitch are all firms mainly known for their clothing lines but have a fragrance line. Also most celebrities now a day's open up their own company or is a sponsor of a line from an existing firm. Both examples are threats of new entrants into a market and are very dangerous. Clothing firms in the fragrance industry and all of the celebrities rely on their popularity for their fragrance to be popular.

In the fragrance industry the suppliers have great bargaining power. The first step in the manufacturing process of a fragrance is to collect ingredients that make the scent. Suppliers have the ability to raise costs of the ingredients. The ingredient is essential to the scent of the fragrance and the firm has no choice but accept the new price set forth by the supplier or look for another supplier. The supplier can also set a quota for the firm to order a minimum ingredients that is higher than the firm needs. To get the ingredients that the firm needs, the firm might agree to this quota.

The fragrance market is very saturated and most of the firms have a scent or two that are the same across the board. This is because the scents are made from the same ingredients as only about 2,000 out of the 250,000 known flower species can be turned into an oil (used for a scent). This creates a very competitive rivalry that leads to companies slashing prices, having sales, giving away presents with a purchase and having a very strong presence in the media with their marketing techniques.

With this market being so saturated, the buyer has amazing bargaining power. The buyer has an option of what firm they want to buy and what scent. With the companies competing, the buyer is the ultimate winner. The prices are lower, they are very familiar with what they are buying from the marketing and they get a free present out of it. If the price is too high, the buyer will just buy the same scent from another firm.

There are more and more fragrance shops opening up offering none popular firm names scents that smell just like the ones that cost twice as much (brand names). This creates a great threat for brand name firms to be substituted because the buyer is getting the same scent for half the price. These less popular firms are also using copy cat like tactics to attract the buyer to buy their cheaper product and to show the consumer that just because they are cheaper, that does not necessarily