This is a freebie! More about Environmental Threats
I thought the was Case #1, but its actually not! Freebie! Environmental Threats!
Chapter 3 – Evaluating Environmental
Threats
Chapter
3 discusses several models utilized to analyze a firm’s internal and external
environment as a strategy to develop and maintain competitive advantage. The
external analyses allows a firm to review its opportunities and threats, while
the internal analyses analyze its individual strengths and weaknesses. In the
1960s and 1970s, this tool became known as a firm’s SWOT (strengths,
weaknesses, opportunities, threats) analysis. The Structure-Conduct-Performance
Model, developed in the 1930s to understand the relationship between a firm’s
environment, behavior, and performance, preceded the SWOT analysis. In this
model, the structure of the industry determines a firm’s conduct as well as
their performance. The third model and primary focus of this chapter is
Porter’s five Forces Model. This model focuses on pointing out environmental
threats and gives a firm a framework that will allow them to minimize or
neutralize threats before they deter them from maintaining or developing
competitive advantages. The five forces
include threat of entry, threat of rivalry, threat of substitutes, threat of
powerful suppliers, and threat of powerful buyers. New entrants to an industry
are new firms that have recently started new operations or that will begin
operating in an industry soon. Barriers to entry can minimize this threat, but
new competitors in an industry can threaten the current performance and
advantages of present firms. The force, threat of rivalry, is defined as the
level of competition between a firm and their direct competitors. When rivalry
is high, firms will take many steps to undercut or challenge their competitors
with advertising campaigns, price changes, and other steps to act out against
their competitors to grab more market share and a more competitive nature than
their rivals will. Threat of substitutes occurs when an alternative to a firm’s
product can meet approximately the same need in the same ways that the firm’s
product or service can. The threat of powerful suppliers is when a firm’s
supplier can increase the price of supplies they need to create their product
or decrease the availability or quality of the materials needed to do the same.
Finally, the final force is the power of powerful buyers. Buyers with
significant power or purchase volume from a firm can influence a firm’s revenue
through their actions. Of the five forces described, the threat of rivalry is
the primary threat facing Nike, Inc., with threat of substitutes serving as
close second.
With
competitors in the sports apparel and accessories industry such as Adidas,
Reebok, and Under Amour, it is understandable why rivalry serves as Nike’s
greatest threat. These companies create similar product offerings that Nike
does, and often times they can do so at a lower price. While Nikes is one of
the world’s most profitable and recognizable brands in this industry, its
rivals can often offer a product that serves a similar purpose, or can meet the
same consumers need at a more affordable price. This is why product
substitution serves as a close second to the company’s greatest threats. According
to the text, rivalry is high when industry growth is slow. Presently, Nike and
its rivals are producing new and innovative product to grasp that competitive
advantage in what some would consider a saturated market. Each firm wants to
create the most outstanding and impactful marketing campaign or the top of the
line shoe, or have the highest performing athlete representing their brand.
They do so to increase their influence and obtain that top spot in the
industry, currently held by Nike. Nike has, however, set itself a part in a way
that gives it some liberties not afforded by other firms. Simply due to their
influence and their brand, the company can sell its products at a higher price
knowing that consumers will still purchase said products due to the quality and
exclusivity of its brand. Nike and one if its rivals could sell the same exact
shoe, but because of the athletes associated with Nike’s brand, as well as the
expected quality and clout gained from wearing Nike products, the firm has
created brand loyalty amongst its consumers that will result in many choosing
that brand over a cost savings every time. These factors make the threat of
substitutes a present concern to the firm, but a moderate force when compared
to the threat of rivalry.
In
regard to the sporting goods and apparel manufacturing industry, whose major
players include Nike, Reebok, Adidas, New Balance, and under Amour, to name a
few, the Porter’s Analysis is as
follows. The threat of entry is weak because of existing barriers to entry such
as product differentiation and cost advantages. These can be combatted if a new
entrant has an innovative and unique feature on its product not yet realized by
its competitors. The threat of rivalry in this industry is very strong due to many
competing firms that currently dominate the market and crept brand loyalty
among consumers. The threat of substitutes is also very high due to similar
products produced by all competitors that serve the same or a very similar
purpose to its consumers. The customization and brand awareness is what can
differentiate a firm in this industry; the threat of powerful supplies is low
in this industry because often manufacturing is outsourced to countries or
firms that will product products at lower costs. The threat of powerful buyers
is moderate in this industry because in today’s technologically advance and
social media driven age, the right celebrity doing a boycott or uncovering an
ugly truth about company practices can turn way a lot of consumer-based
revenue. Finally, expected performance in this industry is moderate because the
market is not necessarily changing or growing, but this industry provides a
product that will always be needed by its consumers and directly correlates to
the success or popularity of the sports industry.
In
conclusion, Nike currently dominates the industry. They have the largest market
share and their success only increases with the artnerships they have fostered
and developed. It is important for them to remain aware of the threats to their
firm to maintain their competitive advantage but as of now the company is in a
very positive market position.
Sources
https://ceberry.wordpress.com/2014/09/21/evaluating-environmental-threats-the-threat-of-substitutes/
Comments
Post a Comment