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"New forms of business continue to enter industries that have long-established firms and expected competitive behaviors.   These new businesses are changing the nature of the industries they enter and also the competitive landscape of that industry. Two examples stand out: Airbnb (discussed on p.75 and 97 of the text) and Uber, a taxi-like firm familiar to most of us. The entry of these firms with generally new ways of doing business are creating a great deal of chaos in their respective industries. What do you see as some of the strategic implications of this type of entry."

Page 75 talks about:

1. Theat to of entry

a) economies of scale

b) newrok effect

c) cutomer switiching costs

d) capitial requirements

e) advantages independent of size

f) government policy

g) credible threat of realiation

2. Power of suppliers

a) the supplier's industry is more concetrated than the industry it sells to.

b) suppliers do not depedn heavily on the industry for a large portion of their revenues

c) suppliers offer products that are diffrenetiated

d) incumbent firms face significant switching costs when changing suppliers

f) there are no readily availavle substitues for the products or services that the suppliers offer

g) suppliers can credibly threaten to foraward-integrate into the industry.

3. Power of buyers

a) there are a few buyers and each buyer purchases large quantities realtive to the size of a single seller.

b) the industry's prodcuts are standardized or unddifreretiated commodities.

c) buyers face low or no switiching costs

d) buyers can credibly threaten to backwardly integrate into the industry.

4. Threat of subsititues

a) The subsitutes offers an attrative price-performance trade off.

b) the buyers cost of switching ot the subsitute is low

5. Rivalry among existing competitors

a) the number and size of its competitors

b) the firm's degree of pricing power

c) the type of product or serivce (commodity or diffrerentiated product)

d) the height of entry barriers

e) perfect commpetition

f) monopolistic competition

g) oligopoly

h) monopoly

Explanation / Answer

New business entrants like Uber, AirBnb etc. have created a disruption in their respective industry domains / businesses by introducing a new style of business and giving a new customer experience may it be in the transportation area done by Uber or it may be done in the cheap and quick accommodation and hotel business by AirBnb.

People have started to join business operations of companies like Uber as its benefitial both for employees as well as to the customers at the same time company is also making huge profits. Considering the impacts done by these companies we can utilize the 5 force model and discuss the impacts

Michael Porter developed a 5 force model, which helps companies access the market competition and define strategies to keep up with the changing market.

It also helps industries to determine the market forces which could impact the ability of business to remain profitable and how to formulate strategies to ensure business remains profitable.

Porters 5 force framework

Ikea is world’s leading brand and has become a symbol in home furnishing industry. It’s the most trusted brand in industry segment and has set new benchmarks for the industry. Ikea has built the trust in customers over a long period of time and people have a deep trust by the best service and quality offered by Ikea. Ikea certainly also follow the Porters framework to remain on top position in this agile market.

Analyzing the Ikea scenario based on the porters frame work

Competitive Rivalry

Even though Ikea is the well-known and most trusted brand in home furnishing industry, there are other players / companies in market which give tough competition to Ikea by offering various offers / schemes and discounts on home furnishings. Ikea continue to maintain upward growth trends and remain profitable by offering best service (pre and post-sale) and best quality thus remain the global market leader.

Threat of new Entrants

Since the market is into home furnishing there is always a threat of new entrants in business both at local and global level. Though there are multiple existing players already present in market, but it’s difficult for new entrants to match up to these existing big brands like Ikea who have the financial stability and their brand have become the industry standard. Its next to impossible for new players to enter market and matchup to the level what Ikea is at after having extensive experience and expertise in industry.

Threat of Substitutes

As there are very few changes in the basic utility and design of products being sold for home furnishing there are very less chances of substitutes. Though there is innovation in industry and extremely high value / classic / vintage design products with multi utility are available but it’s unlikely that the core customers of Ikea which Ikea focuses on would shift their preferences. Various options and wide range of product designs available at Ikea are another reason of customer loyalty.

Bargaining Power of Buyers

Ikea is known for its best quality at cheapest price, one of the main reason for customers / buyers to remain loyal to Ikea is the lowest price offered. Though some local and global players are present in market which offer attractive deals and discounts which sometime attract customers. If Ikea increases the prices drastically then there is a chance customer would switch to other players, but lowest price is part of business model of Ikea.

Bargaining Power of Suppliers

Ikea being a global brand and leader in market have the upper hand in industry and have various supply chain available hence suppliers do not much bargaining power. Since the industry doesn’t operates on any niche skill, and product development is easy and multiple options are available in market hence Ikea can easily partner with these industries and continue business. However Ikea operates for mutual benefit for both supplier and Ikea along with end customer.

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