A Five Forces Example Consumer Products
7/22/2015
A Five Forces Example: Consumer Products
Course 206: More on Competitive Positioning
A Five Forces Example:
Consumer Products
In this course
1
Introduction
2
Porter's Five Forces
3
A Five Forces
Example:
Consumer Products
4
Getting Back to
Moats
5
Types of Narrow
Moats
6
Wide Moats
7
Wide Moats Versus
Deep Moats
8
The Bottom Line
The five forces concept is perhaps best explained through example. (Porter's work is nothing short of excellent, but it is a heavy read.) Let's briefly examine the household consumer-products industry by considering rival firms Clorox CLX, Kimberly-Clark KMB, ColgatePalmolive CL, and Procter & Gamble PG in terms of Porter's five forces:
Buyer Power. Consumer-products companies face weak buyer power because customers are fragmented and have little influence on price or product. But if we consider the buyers of consumer products to be retailers rather than individuals, then these firms face very strong buyer power. Retailers like Wal-Mart WMT and
Target TGT are able to negotiate for pricing with companies like Clorox because they purchase and sell so much of Clorox's products.
Verdict: Strong buyer power from retailers.
Supplier Power. More than likely, consumerproducts companies face some amount of supplier power simply because of the costs they incur when switching suppliers. On the other hand, suppliers that do a large amount of business with these companies--supplying
Kimberly-Clark with raw materials for its diapers, for instance--also are somewhat beholden to their customers, like KimberlyClark. Nevertheless, bargaining power for both the firms and their suppliers is probably limited. Verdict: Limited supplier power.
Threat of New Entrants. Given the amount of capital investment needed to enter certain segments in household consumer products, such as manufacturing deodorants, we suspect
http://news.morningstar.com/classroom2/course.asp?docId=145087&page=3&CN=
1/3
7/22/2015
A Five Forces Example:
A Five Forces Example: Consumer Products
Course 206: More on Competitive Positioning
A Five Forces Example:
Consumer Products
In this course
1
Introduction
2
Porter's Five Forces
3
A Five Forces
Example:
Consumer Products
4
Getting Back to
Moats
5
Types of Narrow
Moats
6
Wide Moats
7
Wide Moats Versus
Deep Moats
8
The Bottom Line
The five forces concept is perhaps best explained through example. (Porter's work is nothing short of excellent, but it is a heavy read.) Let's briefly examine the household consumer-products industry by considering rival firms Clorox CLX, Kimberly-Clark KMB, ColgatePalmolive CL, and Procter & Gamble PG in terms of Porter's five forces:
Buyer Power. Consumer-products companies face weak buyer power because customers are fragmented and have little influence on price or product. But if we consider the buyers of consumer products to be retailers rather than individuals, then these firms face very strong buyer power. Retailers like Wal-Mart WMT and
Target TGT are able to negotiate for pricing with companies like Clorox because they purchase and sell so much of Clorox's products.
Verdict: Strong buyer power from retailers.
Supplier Power. More than likely, consumerproducts companies face some amount of supplier power simply because of the costs they incur when switching suppliers. On the other hand, suppliers that do a large amount of business with these companies--supplying
Kimberly-Clark with raw materials for its diapers, for instance--also are somewhat beholden to their customers, like KimberlyClark. Nevertheless, bargaining power for both the firms and their suppliers is probably limited. Verdict: Limited supplier power.
Threat of New Entrants. Given the amount of capital investment needed to enter certain segments in household consumer products, such as manufacturing deodorants, we suspect
http://news.morningstar.com/classroom2/course.asp?docId=145087&page=3&CN=
1/3
7/22/2015
A Five Forces Example: