- 30 Aug 2011
5 Retail Forces
Speaking as somebody who has recently completed a CIM (Chartered Institute of Marketing) qualification, I’ll admit that I sometimes lost sight of why I was doing it. During one memorable revision break I even contemplated changing career path and becoming a sheep farmer in New Zealand instead. Now I am no longer immersed in mountains of textbooks, I can apply some of the models I studied to real life retail situations. Unless of course I’ve been sent my results by the time this blog is published and they’re not what I was hoping for… in which case I’m probably snivelling at my desk reconsidering sheep farming at the minute.
Take Porter’s 5 forces model first published over three decades ago, which to this day continues to help retailers analyse the competitive environment. For example, in the highly crowded UK retail market.
1. ‘Competitive Rivalry’
Competitive rivalry is high, however, the marketplace remains highly desirable meaning to new entrants that it is considerable
2. ‘Threat of New Entry’
The threat of new entry for existing brands is a real concern for any retailer. Of recent years many retailers have felt the pinch after supermarkets diversified their offering from food and entered their sector. Examples of this have included the entertainment and clothing categories, as consumers have found it convenient to stock up on these items whilst doing their weekly grocery shop, as opposed to making a special trip to the high street.
3. ‘Threat of Substitution’
Threat of substitution with lower quality/cheaper alternatives. With consumer confidence low and discretional spending hit some buyers ‘trade down’ from brands that they had previously bought meaning that in many markets
4. ‘Buyer Power’
Buyer power is high as consumers will take time to ‘shop around’ for the best deal. Therefore retailers are increasingly having to work harder and be more innovative than ever to ensure those all important sales.
5. ‘Supplier Power’
Many independent retailers would argue that some of the brands supplying them are also their competitors. This is because high wholesale prices force the independent to sell the items supplied for a premium, whilst the manufacturer is able to sell the same products directly to the consumer via their transactional website at a lower price.
Do you agree with this analysis and is Porters 5 Forces relevant to your retail business? Or do you have any words of wisdom regarding sheep farming in New Zealand?
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