Article Review : The Five Competitive Forces That Shape Strategy
By Michael Porter
By Michael Porter
Good Afternoon Barista Blend lovers!
Which the sudden rise in competition many of you are probably wondering how we expect to remain a competitive force in this hyper competitive market. Last night we stumbled upon a great article by Michael Porter. He describes the fie forces that shape strategy. From his model we have formed a fantastic competitive strategy that will help us create many different advantages over the years to come. In this post, we will discuss how Porter's model will help keep Barista Blend ahead!
In this article Porter first explains how the five forces that shape a firm's strategy. The five forces are:
1) Threat of entry
As Porter explains, new entrants desire to attain a high market share. Their entry puts a cap on possible profits, as the price for coffee drops. Although there are several barriers preventing new shops from opening, the high demand for coffee will ultimately lead to the opening of many new coffee shops.
At Barista Blend we acknowledge that many new coffee shops are opening. Therefore, we know that in order to remain competitive we have to differentiate ourselves from the rest of the competition. Our mission is to constantly add new products to our menu such as smoothies, teas, cookies, doughnuts, and even healthy options. We believe our tropical theme differentiates us from the rest of the industry. When new coffee shops open, we want our customers to see that the variety at Barista Blend exceeds any benefits given at new coffee shops.
2) Bargaining power of suppliers
Porter notes that suppliers of the goods are not the only suppliers. The employees that make the finished product are also suppliers in the process. With their bargaining power they can easily ask for more money for their suppliers or higher working wage. These steep demands can quickly diminish profits and drive up the price of the product.
It is our mission to make sure that our suppliers do not try to raise the price of our service. If we have to, we will resort to finding cheaper suppliers and employees that do not demand all of our profits. Most importantly, we are committed to offering customers a wide variety of products to satisfy every customer's need.
3) Bargaining power of buyers
In his next section Porter describes how buyers have the ability to demand lower prices and better service. If their demands are not met, they will take their business someplace else. While the customers demand better quality and service, the cost to produce the product goes up. Buyers want to make sure that they get a great value when they purchase their product, even if that means they have to pay more.
We realize the power that our customers have. Therefore, we make our product differentiation and quality evident to them every time they enter our shop. Although our competitive strategy is not to have the lowest prices, we do have the greatest variety of products. As our customers see our dedication to them, we expect their continued patronage in support. By bringing Barista Blend into the 21st century we will give our continued customers a reward card in which hey can earn free coffee and other treats.
4) Threat of substitute products or servicesWhen there are many available substitutes, profits suffer, Porter explains. Switching to a substitute is generally very cheap and cost effective for the consumer. In order to stay competitive in a highly competitive markets, managers must closely watch the market and be aware of changes.
A substitute for coffee is tea, smoothies, and even water. At our store we offer all of these choices to make sure our customers do not have to go elsewhere to find a substitute. Saying that, we are fully aware that our products will not earn us profits in the long run. This is why we have decided to keep introducing new products to help gain new advantages over a shorter period of time.
5) Rivalries among existing competitors
Lastly, Porter explains the important effects on rivalries. He immediately notes how fierce rivals can engage in price wars if the products are similar. He also mentions how capacity also plays a role in competition. He states that it must be expanded in order to increase efficiency. Lastly, he reminds that rivalry is not only about the product, but the quality and service.
With our chief rivals being Starbucks and Dunkin' Donuts, we plan to strive in this market by staying ahead and differentiating our products and service. We believe it is foolish to engage in pricing battle since we already offer our lowest possible price. Dropping our prices would mean service and differentiation would suffer. Since those are our competitive strategies we cannot afford to sacrifice them.
There are other factors that Porter briefly mentions but they do not shape our strategy.
1) Industry growth rate
The coffee industry is growing at a tremendous speed. If we reach out to younger customers we believe that future generations will be inclined to start purchasing coffee and our shop and remain customers for a long time.
2) Technology and innovation
Moving into the 21st century we now have a Twitter and Facebook profile. If you follow or like us, you will be able to see our private tweets on the release of new products and coupon codes redeemable at the store.
3) Government
Patents and copyrights can boost prices of goods. Our legal department will guide us to obtaining patents for our unique products. They will also help us make sure that all of our products do not break any copyright or patent laws.
4) Complementary products and services
Our Member Rewards Card will be given to customers that are consistently buying our high quality products. With this card they will receive birthday gifts, free cups of coffee and promotional items.
In closing Porter reminds us that industries are constantly changing. However his message remains the same. He believes making a good strategy will help position a company to exploit new opportunities and stay successful in a highly competitive field.
Thanks for reading
-Barista Blend
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