Porters Five Forces model was first introduced as a business analytical model which allows the users to determine a business’s
standpoint, which allowed businesses to identify the competitiveness of the
industry, and how different industries remain profitable. The tool was first
created by Michael Porter in 1980 (Grant, R. 2016), the tool has 5 areas
that highlights key areas businesses should look at.
Competition in the industry
of competition in an industry occurs in a variety of areas in a firm, for
example price, products, advertising and customer service etc. (Hamilton and
Webster, 2015, pg. 81).
within the food industry is very high, creating competition in terms of
pricing, products etc. depending on the industry, the environment can be very
harsh for success, for example, as mentioned in appendix 1, TH are now going to
move their operations into the UK, although this is a strategic move, to expand
the brand image and gain further publicity, TH will experience harsh competition
as there are already established businesses within this sector, i.e. Starbucks,
Costa, Greggs and Pret Manger. Furthermore, this can lead to inevitable
scenarios i.e. pricing wars, product differentiation, and new incentives. Therefore
it is important to understand and be confident before entering a market where
there is harsh competition. See appendix 5 for TH competition.
Potential of new entrants into the industry
are also affected by the new entrants into the market; new entrants will be
attracted to the idea of high profits and the potential for abnormal gains, as
they may believe that the success of one store will lead to the success of
another (Hamilton and Webster, 2015, pg. 82-85). For example, TH stores in the UK may be successful and
attract an array of customers, which can lead to investors to open outlets in
this type of market, either a franchise of TH or a completely new business
brand. This can potentially affect already established businesses in this
market i.e. TH, as the more competitors enter the market the more a company’s
position may be weakened.
Power of suppliers
Suppliers can have an impact on businesses easily, as the
suppliers can drive up prices or goods and services, which leaves businesses to
no alternative but to either stick with current suppliers or to essentially
just purchase from other suppliers. However this can lead to more expense and
time wasted. This can potentially have a detrimental effect on organisations, because
if there a low number of suppliers, it can leave businesses with no choice but
to pay the alternative prices (Grant, R. 2016).
As TH only have few stores in the UK, this can have an adverse effect as they
will not be able to bargain as much with the suppliers, therefore they will not
gain the benefits from economies of scale.
Power of customers
of customers arise when there are large number of buyers and few sellers, this
usually occurs when there a large number of firms in which they all sell products that are similar (Johnson et al., 2017). Buyers have a lot of influence over the price of goods if
there are many firms that operate in a certain sector, i.e. TH have a lot of
competition, so therefore the prices of products cannot be high, as this will only
result in consumers choosing their competitors.
Threat of substitute products
products are commonly found nowadays and have become a flag issue that
companies will have to overcome. This is a major threat to organisations as the
impact can cause for pricing wars and more advanced competition. Therefore businesses
like TH will have to be wary of other firms in this sector as consumers can
switch and choose products that may be more better/similar, from competition. Or
alternatively, consumers may feel inclined to make coffee at home rather than
buying from a store, thus it is important for TH to maintain standards and
increase promotional techniques to reach and gain more customers.