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Porter's 5 forces

Porter's 5 forces

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Published by: CzarPaguio on Mar 16, 2011
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Bargaining Power of the Consumers

The power of the buyers to affect the industry is an important aspect of the business or industry. If the bargaining power of the consumers is somewhat strong, then the intensity of the competition between the players in the market increases. At least 80% of the goods and services being offered by 7- Eleven is standard or similar to the other players in the market. Under such conditions, the buyer may have a say on the price of goods since they feel that they can easily find a substitute to the products of 7- Eleven. The said buyers also do not have huge switching costs in changing vendors. (Porter, 2008) Switching costs refer to the negative costs that consumers get when switching to another vendor. Since consumers can easily go to a supermarket, sari-sari store or any other convenience store, then their bargaining power is somewhat strong. In the case of 7- Eleven, their biggest threat in the market is Mini Stop. There is always a Mini Stop within a 500 mile radius of 7-Eleven. This strategic positioning of Mini Stop convenience stores near 7-Eleven, makes it easier for consumers to switch vendors. This gives the consumers the ability to influence the setting of the prices.

IV. Bargaining Power of Suppliers

Increasing intensity of competition is prevalent when there are a large or small number of suppliers of raw materials. If the suppliers are powerful, then they may capture for themselves some of the profit or value of the industry. The suppliers can charge higher prices or limit quality of the goods and services. Companies like 7-Eleven depend on different suppliers since they have an assortment of goods and services. There are two main sources of supply in 7-Eleven supply chain. First one is suppliers and another is the company itself. (CP ALL Plc, 2009, and Puapairoj, et al., 2009) The 93 percent of total products in 7-Eleven stores are supplied from 1,200 1,500 suppliers. Each has the share for less than

20 percent of the total sales of which according to the risk management scheme, does not depend on any particular supplier more than necessary. The left 7 percent are supplied from 7-Eleven groups. The company has in-house manufacturers, within other holding companies in Philippine Seven Group, which supply daily products such as chilled food, bakery and other exclusive food. This ensures that the power of the 7-Eleven suppliers is minimal since they do not rely too much on just one supplier. There is also an insignificant amount of switching costs to another supplier. The differentiated products of 7-Eleven which include their chilled food and baked goods are produced by their in house manufacturers. This significantly diminishes the power of the suppliers. Suppliers are only powerful if:

If the barrier is high. ( Porter. It s either the existing companies hold down their prices or they invest in creating a modern and diverse industry of their own. the suppliers themselves can threaten to produce the similar products of the industry. There will also be minimal significant switching cost for the industry makes use 1. - Their product is differentiated. 2008) Incumbency advantages independent of size: Incumbents have cost or quality advantages not available to potential entrants. The threat of new entrants depends highly on the entry barriers of the industry it is in.- There can be a forward integration threat by the suppliers. These advantages can come from technology. Capital Requirements: There is a need to invest large financial resources in order to compete with the incumbent businesses. When the threat is high. Demand Side Benefits of Scale: This also known as network effects.200. then little or few companies would want to engage in that business. 7-Eleven also ensures that there is minimal reliance on others for their products. This includes: Supply Side Economies of Scale: This happens when firms produce larger volumes but still maintain lower costs per unit since they can spread fixed costs over more units or they are more efficient in production.1. Almost everyone in the Philippines knows about 7-Eleven. Threats of New Entrants and Entry Barriers New players to the industry can diversify the market and could affect competition and the prices of the goods and services. we could infer that there can be no threat of producing the same differentiated product for 7-Eleven makes use of in-house manufacturers for their special goods and services. ( Porter. then it lessens the amount of profit or money a business may gain. access to raw . In this case. for this arises when a buyer is willing to pay more for a company s product when a lot of other buyers patronize the company.500 suppliers. For the first and second instance. The company has established itself as a major player in the Philippines and has continually improved their goods and services to match the patronization of the people. 2008) It can be said that 7-Eleven enjoys this advantage for there are thousands of 7-Eleven stores that are scattered all over the country. There is a significant switching cost. There are several entry barriers that are advantageous to the existing companies relative to the new entrants. V.

it has established brand identity all over the Philippines and even the world. It shows that even though there are a lot of new entrants.com/strategy/porter. (Porter. http://www. Restrictive Government Policy: Government policy can hinder or aid new entry directly. 7-Eleven is still unsurpassed. (Porter.materials. geographic locations and brand identities. Investors and other suppliers may have preferential tendencies since the brand is well-known.quickmba. 2008) This chart shows the number of convenience stores the Philippines has from 200-2008.shtml Porter. as well as amplify (or nullify) the other entry barriers. 2008) Since 7-Eleven has been in the industry for quite some time. Michael (2008) The Five Competitive Strategies that Shape the Market . Government directly limits or even forecloses entry into industries.

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