INDUSTRY ANALYSIS (PORTER’S FIVE – FORCES MODEL)
Various industries realize different levels of profitability which can partly be explained by the structure of
the industry, defined as a market for identical or similar products and services offered to consumers. For the
analysis of the industry, qualitative analysis of the competitive position and business strategy development
there are many models that can be applied, including Porter’s 5 forces model. This model places the industry in
the context of the impact of 5 forces from company’s environment that affect its ability to satisfy customers and
make a profit and that determine the degree of competitive intensity and therefore attractiveness of the market,
which in this case refers to the general profitability of the industry. Unattractive market/industry is one where
the combination of the impact of the 5 forces reduces profitability, and totally unattractive industry is one that is
close to the model of perfect competition. The five forces (1.rivalry among existing competitors; 2.threat of
substitutes; 3.the possibility of entry of new competitors; 4.bargaining power of suppliers; 5.bargaining power
of customers) whose influence determines market attractiveness are divided into two levels,
i.e. three of them
are at the level of horizontal competition, and other two on the level of vertical competition, respectively
(Michael, 1985).
Figure 2. Porter’s 5 forces
For the analysis of problems in business, there are several models that have been successfully used in
determining the extent of the impact of the factors analyzed for a certain phenomenon. One of the frequently
used in cases of high degree of uncertainty in the analysis, is the rule of thumbxviii. In order to make a successful
analysis based on Porter’s 5 forces model, it is necessary previously to determine the factors that contribute to
the end result - whether and to what extent they affect the profitability of the industry. These factors are actually
five previously mentioned forces, which are further divided into their sub factors of influence, and these are the
element of analysis in order to obtain information that will formulate a strategy for the business plan. One way to
determine the weight of each of the factors provided that each of the sub factors have more or less the same
degree of influence and if each of the sub factors are assessed with "high" (3), "medium" (2) or "small" (1)
impact on increasing rivalry and decrease of the attractiveness, then subsequently the conclusion for the impact
of each factor can be assessed as "high", "medium" or "small" according to the average of the estimates of the
sub factors. With the same algorithm can be determined which sub factors can be involved in assessing the
impact of each of the factors (Jellema M., 1997). The evaluation of the current impact of the 5 forces on the
Macedonian chocolate industry profitability is based on the average of managers’ opinion about the degree of
current influence of each sub-factor of the 5 forces on a interval scale from 1 - 3 (1-lowest, 3-highest)xix
.
1. Rivalry among existing competitors – 2,38 (High number of competitors - 3, Low market growth rate -
3, Barriers for exit the market - 1, Fixed costs - 2, Highly differentiated products - 2, Low costs for
crossing over - 3, High promotional costs - 2, Brand identity -3);
2. Threat of substitutes – 3 (High number of product substitutes – 3, Low costs for crossing over – 3)
3. The possibility of entry of new competitors - barriers to enter and exit the market – 2,15 (Need for
investment – 2, Availability of materials - 2, Politics and law regulations – 1, High transaction costs –
3, High promotional costs – 3, The direction of prices movement – 2, Brand power – 2, Customer
loyalty and elasticity of demand - 2, Economy of scale is needed – 3, Vertical integration is present –
2, Absolute advantage in costs is present – 3, Network effect and globalization is present - 3);
4. Bargaining power of suppliers – 2,5 (Low concentration of suppliers – 3, High quantity of purchase per
supplier – 3, High importance of raw materials - 3, Cost of change – 2, Little number of substitutes for
raw materials -3, Power of labor organizations -1);
5. Bargaining power of customers – 2,67 (High concentration of byers as opposed to sellers – 3; Degree of
dependence on existing channels of distribution - 2, Great number of substitutes - 3; Consumer price
elasticity – 2, Great product differentiation - 3, Great informational power of consumers - 3).
After the analysis it can be concluded that the degree of competitive intensity on the chocolate market is
high (2,6), which inevitably, from the point of profitability reduces the attractiveness of the market. Chocolate
market is mature and fragmented market, where more profit can be achieved by increasing market share, which
means that companies must lead in the fight for the end consumer. To overcome the gap that occurs in rivalry
with existing competitors, it is necessary to establish a concrete strategy for market positioning of the products
1.rivalry among
existing
competitors
5.bargaining
power of
customers
4.bargaining
power of
suppliers
3.the possibility
of entry of new
competitors
2.threat of
substitutes
that will strengthen the position of the company, whilst avoiding the practice of price competition and instead,
apply the product differentiation and establishing cooperation with competitors or enter into partnerships with
some of the competitors. Due to the threat of substitutes the products must be differentiated from competing
offers and greater value through a unique product should be offered, which will reduce the possibility of
replacing the product of the company with a substitute. The possibility of entry of new competitors can be
limited primarily by creating a strong domestic brand of product that will generate loyal customers. Great
bargaining power of buyers and consumers can also be reduced through differentiation of products, promotion of
the best value for the price to increase loyalty to the products, better customer servicing and make products more
affordable through intensive distribution or increasing the number of own specialized stores. Power of suppliers
should be controlled by grouping orders to receive quantity discounts, reviewing the possibilities for cooperation
with producers of sugar beets in the state to avoid higher prices of imported sugar. For the analysis of the
industry and market to be complete, a comparative overview of the range of competitors in terms of key success
factors in a particular industry needs to be done, which shows the progress of the company vs. competitors
through two-dimensional matrix (Table 5).
Table 4. Analysis of the key success factors in the chocolate industryxx