Practical cases about Porter’s five forces model

Category: Business/Financial Management>>Business Management

Problem Description:

Since I have to write a paper, I need to cite multiple questions about Porter's Principle ( A practical case of the five forces model in Porter's theory to prove the usability and practicality of Porter's principle. I really can't find such a case, so I asked a question. Although I don’t expect anyone to be able to answer it, let’s give it a try~

Analysis:

Porter’s five forces analysis is a micro-environment analysis in external environment analysis and is mainly used to analyze the industry. The competitive landscape of enterprises and the relationship between this industry and other industries. According to M.E. Porter, competition in an industry is not only conducted among original competitors, but there are five basic competitive forces: potential new entrants to the industry and competition from substitutes. , the bargaining power of buyers, the bargaining power of suppliers, and competition among existing competitors. The status and comprehensive intensity of these five basic competitive forces determine the intensity of competition in the industry, thereby determining the ultimate profit potential in the industry and the degree of capital flow to the industry. All of this ultimately determines the ability of an enterprise to maintain high returns. . The following is a brief description one by one:

1. Potential new entrants to the industry: Potential new entrants to the industry are an important force in industry competition. Most of these new entrants have new production capabilities and certain The necessary resources are expected to establish a favorable market position. New entrants joining the industry will expand production capacity and demand market share, which will inevitably lead to fierce competition with existing companies and cause product prices to fall; on the other hand, new entrants need to obtain resources. production, which may increase the industry's production costs, both of which will lead to a decrease in the industry's profitability.

2. Threat of substitutes: An industry often competes with companies in another industry because the products of these companies are mutually substitutes. If the price of a substitute product is relatively low, its introduction into the market will limit the price ceiling of the industry's products to a lower level, which limits the industry's profits. Competition between this industry and other industries that produce substitute products often requires that all companies in the industry take common measures and collective action.

3. The buyer’s bargaining power: The buyer is also the customer. The buyer’s competitive strength needs to be determined according to the specific situation, but it is mainly determined by the following three factors: the quantity of products required by the buyer, and the buyer’s conversion to purchase. The costs of other alternative products and the goals pursued by each buyer. Buyers may demand lower purchase prices, high-quality products and more high-quality services. As a result, competitors in the industry will compete with each other, leading to a decline in industry profits.

4. Bargaining power of suppliers: For a certain industry, the strength of the competitive power of suppliers mainly depends on the market conditions of the supplier industry and the importance of the items they provide. Suppliers' threats include: first, increasing supply prices; second, reducing the quality of corresponding products or services, thereby reducing profits for downstream industries.

5. Competition among existing competitors: This competitive force is the most powerful force faced by an enterprise. These competitors use various means according to their own set of plans. (Price, quality, style, service, guarantee, advertising, sales network, innovation, etc.) Striving to occupy a favorable position in the market and compete for more consumers has posed a great threat to the industry. "Other stakeholders" is what the management scientist Freeman suggested to add to Porter's competition model. These stakeholders are governments, unions, local communities, lenders, trade organizations, shareholders, special interest groups. Among them, *** has the greatest force.

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Comprehensive analysis of Nike and Adidas using Porter’s “Five Forces” model

1. Analysis framework and basic market conditions

In his classic book "Competitive Strategy", Michael Porter proposed an industry structure analysis model, the so-called "5 Forces Model". He believed that: Industry The five major competitive driving forces are the existing competitive situation, the bargaining power of suppliers, the bargaining power of customers, the threat of substitute products or services, and the threat of new entrants, which determine the profitability of an enterprise. Compare the effects of these five forces to analyze the competitive status of American sports shoe companies.

First of all, there are high barriers to entry in this field. The U.S. sports shoe industry is composed of brand-based companies that do not require factory production. Large companies have more cost advantages in advertising, product development, sales networks, and exports. More importantly, brand personality and consumer loyalty have set up invisible barriers to potential entrants.

Secondly, the bargaining power of suppliers is weak. Because the inputs in most sports shoe industries are homogeneous, especially after Nike launched a wave of outsourcing, more than 90% of production is concentrated in countries with low wages and a far oversupply of labor.

Thirdly, end consumers of sports shoes care about price and are more sensitive to fashion trends, but this does not have a very negative impact on the company's profit margin.

Because if there is a reduction in profits, then this will be made up by lower production in developing countries. Furthermore, most brands are successful at product differentiation, which prevents buyers from associating the brand with a constantly shifting brand image.

Fourth, because other footwear is not suitable for sports, there is no complete substitute for sports shoes.

Fifth, the U.S. athletic shoe market is seen as challenging and saturated, with fierce competition and slow growth, leaving little room for new entrants. Major brands such as Nike, Adidas and Reebok have captured more than half of the market share and have remained relatively stable.

Through analysis, we can see that on the one hand, this is a coveted market, but with high barriers, low supplier bargaining power, moderate buyer bargaining power and no well-known brands. substitute products, it is difficult to squeeze out profits. On the other hand, when there is no monopoly power in addition to a high degree of market concentration, regional competition is intense. Therefore, in this competitive environment, the sustainability of independent firms' extraordinary profits relies heavily on their strategies.

2. The market position of Nike and Adidas

(1) Nike’s leadership position

Nike originated in 1962, pioneered by Phil Knight. It was named "Blue Ribbon Sports" at the time and was officially renamed Nike in the 1970s. It initially surpassed Adidas to take the top spot in the U.S. sports shoe industry, accounting for about 50% of the U.S. market share in 1980. Since then, Nike has launched an aggressive marketing campaign, signed top athletes, and coined the slogan "Just Do It."

Nike positions its sneakers as high-quality products with innovative design and technology at high price points. With its rich product types and outstanding designs, Nike accounted for more than 39% of the U.S. sports shoe market in 2000, almost twice the market share of Adidas.

Since the 1970s, Nike has gradually transformed from a product-oriented company to a market-oriented company. It operates globally, designing high-tech and high-quality products in-house, producing them in low-cost countries, and successfully marketing them to establish itself as an icon of youth subculture. Nike's unique resources include patented products and trademarks, brand reputation, company culture and the company's unique human assets.

In order to understand how Nike can develop a competitive advantage based on its resources and strength, we will analyze their value chain from the aspects of production, sales, and marketing below.

1. In terms of production, since the 1970s, Nike has outsourced manufacturing to many Asian countries. Outsourcing gives Nike access to cheap labor and substantial discounts from suppliers. Moreover, outsourcing allows customers to obtain new products from the market faster and reduce the risk of capital investment.

2. In terms of sales, this "futures" ordering plan allows retailers to pre-order shipping guarantees 5 to 6 months in advance, ensuring that 90% of orders will be at a determined price at a determined time. Shipped. This strategy successfully reduced inventory to a minimum and shortened inventory turns. Today, Nike has three sales channels: retailers, Niketown and e-commerce. Nike City was established in the 1990s to display Nike's latest or most innovative product series and advertise on the main roads. Nike City is not so much a sales channel as a marketing tool. E-commerce started with Nike in the 1990s, and Nike also allowed other online companies to sell its products. The e-commerce strategy has allowed Nike to rekindle its direct relationship with consumers.

3. Marketing, as one of Nike's core competitiveness, is not only advertising, but also attracting and retaining customers. The marketing strategies employed by Nike's marketing team always reflect public opinion. For much of the 1980s and 1990s, professional athletes were worshiped like heroes, so Nike invested heavily in hiring successful, charismatic and famous athletes to endorse its products. For example, when Michael Jordan joined the Nike team in 1984, "Be Like Mike" became a slogan that captured people's admiration for Michael Jordan. When Jordan retired in 1999, Nike could not find an athlete to take his place, so Nike turned to a new campaign called "Nike Play," which consisted of a series of short videos that showcased personal achievements and encouraged everyone to participate. We can see that marketing strategies must change with consumer preferences. Responding quickly to market changes is the magic weapon to maintain Nike's core competitiveness in the footwear market.

(2) The challenger role played by Adidas

"Provide the best shoes for every athlete." Encouraged by this simple yet ambitious concept, more than 20 Adi Dessler started making shoes at the age of 19, and finally established a company called "Adidas" in 1948. The company produced a wide range of high-quality sports shoes, eventually becoming the premier supplier of sports shoes to all major events around the world in the 1960s. In the late 1960s, Adidas firmly occupied the top spot in the sports shoe industry.

However, in the 1970s, Adidas did not realize that civilian sports had become a trend, and still focused on professional sports shoes. Due to the failure of sales expectations and the underestimation of market competition, Adidas's position was challenged and was finally replaced by Nike in the late 1970s.

After joining forces with Salmon in 1997, Adidas rebuilt its market share from 1998 to 2000, ranking second behind Nike. However, the company's market position fell to third place in 2002, with only 11.8% compared to Nike's 40.6% market share. It still maintained this position in 2003.

Judging from the history of Adidas, it was the first footwear company to initiate production outsourcing. Their production companies are located in China, Vietnam, Taiwan and Latin America. Their supply chain now utilizes 3 different supplier types, including contractors, sub-contractors and local raw material companies. Their outsourcing strategy was critical to the group's success and was emulated throughout the field. This strategy can transfer risks, reduce labor costs and focus on Adidas' core strategies - marketing and research and development.

Marketing is one of Adidas' two core strategies. In 1997, Adidas announced the acquisition of Salomon Company, forming one of the world's leading sporting goods group companies with outstanding brand shares. The two companies complement each other in terms of products and geographical coordination. Salomon performed particularly strongly in North America and Japan, which was helpful for Adidas in increasing its market share in the United States. They refocused and repositioned the adidas brand to fully exploit its market potential, consolidating all products into three clear customer groups: Eternal Sports, Originality and Equipment. This segmentation creates stronger market penetration among sports, sports and active lifestyle customers. Adidas always insists on inviting celebrities to be product spokespersons and sponsors sports leagues. Kobe. Bryant, Anna. Kournikova and Beckham are extraordinary talents owned by Adidas. Adidas has always been one of the largest sponsors at the Barcelona Olympics, the European Football Champions Cup, the French Football World Cup, the US Women's Football World Cup, etc.

In addition to marketing, research and development is another core strategy of Adidas. They established a new technology innovation team and launched at least one major innovation every year. In 2003, Adidas established a "mass customization" system, which can design special shoes according to the different conditions of customers' feet, personal preferences and requirements. The advantage of being a leader puts Adidas first in this field.

3. Respective market strategies

(1) Adidas, how to challenge the leader?

Adidas has extraordinary capabilities in research and development, and what it needs is a more customer-oriented marketing strategy. Even if Adidas and Nike can imitate each other, they should try to differentiate themselves from each other in terms of effective execution and coordination. While Nike's marketing and R&D teams focused more on the needs of North American consumers, Adidas took the initiative to shape its own market segments. Because judging from the overall performance of the two, Adidas's return on total assets (ROA) and Nike are very close, which means that in the long run, Adidas has the potential to compete with Nike.

1. Product localization

As a German sports brand, Adidas should "Americanize" its footwear products in the US market. Products that Europeans like may not necessarily appeal to Americans. Adidas should recruit and develop talents who truly understand and can predict this dynamic market. This is an inimitable resource. Then you can reshape your market segmentation based on the results of these predictions, so that on the one hand, you can meet the needs of American consumers, and on the other hand, you can ensure that you have a unique advantage in this market segment. Americans place more emphasis on personalization, so in terms of advertising, Adidas should make its image more personalized and reduce the use of celebrities.

2. Consolidate quality advantages and improve product series

The strategic decision a company chooses depends on the path it has taken in the past. Considering this aspect, because Adidas has long been known for its strict quality control system, which ensures the high quality of Adidas products, this tradition should be maintained and further promoted. Also, driven by the strategic attempt to regain global dominance, Adidas should design a new strategy that can win the so-called "dynamic efficiency". Although Adidas has established its complementary product market, they can also surpass Nike by strengthening the "network effect". For example, they can design a full range of sportswear, hats, scarves and handbags to match their sneakers.

3. Take advantage of patents

Nike and Adidas can also be said to be two opponents in a "patent race". Adidas should be able to estimate Nike's R&D investment. In addition, while focusing on the European local market, because the United States is an overseas market for Adidas, the company should promote the localization of products by introducing more personalized elements into its future product designs.

4. Learn from Nike’s ordering and distribution strategy

Nike’s future ordering project helps the company grow rapidly. Adidas should imitate this strategy by implementing a similar ordering system with its retailers to keep their inventory at an optimal level. However, Adidas must also realize that the successful operation of this mechanism is based on many conditions, such as accurate sales forecasts, strong market demand, etc. In addition, compared with Nike, Adidas has not been successful enough in the field of e-commerce. To win this critical battle, it is crucial that Adidas learn from Nike and authorize professional e-commerce companies to operate its online sales.

(2) Nike, how to maintain its dominance?

1. Maintaining competitiveness in the local market

It is very challenging for Adidas to operate in the US market, but patriotic American consumers are likely to prefer domestic products. Not imported goods. Nike has advantages in local management practices, organizational structure, corporate governance and control of local capital markets. If they can survive fierce local competition, they will be more competitive in the international market. To maintain its dominance of the U.S. athletic shoe market, Nike should continue to focus on its core competencies: marketing and R&D. On the basis of their already high degree of consumer loyalty, brand awareness and huge market share, they must also maintain their quality standards while constantly developing new products and implement effective marketing programs in response to market changes.

2. Isolation mechanism

Even if Adidas can imitate Nike's strategy, they cannot simply copy Nike's corporate-specific competitive methods, such as patents, brands and manpower. capital. Nike can protect the company's human capital by offering generous compensation to retain its key employees and increase their loyalty to the company. As for product imitation, Nike can take legal measures, such as relevant regulations on property rights, franchises and patents. But they must also realize: "Protecting intellectual property rights does not mean molding products, processes and technologies. In open competition, it is best to regard them as islands scattered in the sea (meaning only a corner is exposed). )." Wouldn't it be safer if there was no chance that your secrets would be exposed to the potential of your competitors? In addition, relying on its existing brand reputation and market size, Nike obviously has too many advantages over its competitors in acquiring resources and consumers. In addition, Nike's unique capabilities often include some tacit knowledge that can only be understood but cannot be expressed, which is difficult for outsiders to understand. These things are accumulated from its unique corporate history and are rooted in the complex process of social change.

3. The route keeps pace with the times

Compared with Adidas, Nike has a much shorter history. It has customer-oriented marketing and products. Moreover, Adidas is now facing a sales decline, and Nike is taking advantage of this lead to increase investment in NikeID shoes. Because of high consumer expectations, coupled with its deep financial resources and capabilities, this market has a bright future. On the contrary, Adidas is in the second life cycle of the company. It is working hard to increase its market share, and Reebok is also eyeing it. Because of path dependence, Adidas has inherited its previous product routes and adapted to a wider range of market groups. Will this strategy actually win it a wider customer base? Would they have done better without this strategy? It's hard to say. Path dependence will constrain a company's strategic choices and limit its opportunities. In fact, it is difficult for an enterprise to change its course quickly, but if it wants to survive in competition, its course must also keep pace with the times in the face of a rapidly changing environment. In short, as a market leader, Nike must avoid mediocrity and maintain innovation so that it can always stand at the top of the competition.

In short:

Nowadays, China's travel shoe market is also full of fierce competition. There are many domestic, foreign, big and small brands. This is obviously a problem for those who are in the process of development and rise. Domestic brands in China have exerted tremendous pressure. In such a market environment, in addition to actively refining the core value of their own brands, domestic brands also need to formulate clear market brand strategies. Only in this way can the marketing offensive be targeted and targeted. Unfortunately, most domestic travel shoe manufacturers currently focus on advertising. Although such celebrity-endorsed advertising can quickly increase sales in the short term, it is not conducive to the long-term development of the brand, nor is it conducive to maintaining short-term success. market share occupied within. If domestic travel shoe brands want to truly establish their own long-term development, it is necessary to learn from the cases of Nike and Adidas and plan clear strategic goals.