What is porter’s five forces model all about? Whenever you start any business, you have some sort of questions in your mind about the concerned industry to get to know that where you stand in the current scenario. It’s not necessary that you possess some questions in your mind merely if you have just started a new business, you may have still question like this if you are already running a business. Definitely, to answer those questions, you need to follow something that gets you the answers. One of the most effective analysis tools is the porter’s five forces model. With the help of this, you get to know about the competition level in a concerned industry as well as the level of profitability for your business.
As a matter of fact, Hindustan Unilever Limited doesn’t need much introduction. In the global market of customer’s good, HUL is competing effectively. Being one of the widest and successful companies in the global consumer goods market, HUL deals with a wide array of external forces, which can be seen in the figure above.
A quick overview of porter’s five forces analysis on HUL
1. Competitive rivalry/ competition – HIGH
2. Threat of new entrants – LOW
3 Threat of substitute products – LOW
4. Bargaining power of suppliers – MODERATE
5. Bargaining power of buyers – HIGH
Competitive Rivalry
No matter what the industry is, the competition has always been the major thing to consider. When we talk about HUL, competition becomes one of the most important external factors to consider. The HUL face a strong level of competition from its competitors in the industry. What are a few factors that serve as a basis for strong competition against HUL? These factors are a large number of firms and high aggressiveness, and the low switching costs.
HUL isn’t the only firm but there are a number of firms available that are operating in this industry of customer goods. As a matter of fact, there are many which are giving the tough competition to HUL as the switching cost for the customers is really low, for instance, the customers are always provided the several options to buy the goods from, in this high level of competition in this industry.
Bargaining Power of Buyers
The business of HUL entirely depends on the customer’s response to the products. So, in this scenario, the customers, as well as their response, is really very important for the company. So, when we talk about the bargaining power of customers for HUL, it’s really high.
The reason is that the cost of switching for the customers is really low so they can easily transfer or switch from the HUL products to the others companies. Also, the customers have all the information regarding product quality as well as its prices. So, this also makes it really very easy for the customers to judge well and switch to the option which is beneficial for them. For instance, the customers can compare the quality of products as well as their prices and decide on the better option for them, from all available options. So, keeping all these things in mind, we get to know that the bargaining power of the customers for HUL is really strong and HUL needs to satisfy them in accordance with the quality and prices.
Bargaining Power of Suppliers
When we talk about the bargaining power of suppliers for HUL, it is considered moderate. As a matter of fact, the HUL has a wide array of options; when we talk about the suppliers so the size of average suppliers remains moderate in size. What are the external factors which contribute in this scenario? The external factors are moderate overall supply, the moderate population of suppliers as well as the moderate size of individual suppliers.
The last but not the least thing to consider in this regard is that HUL has a very good relationship with its suppliers, same as it has with the customers. So, the suppliers don’t switch or higher their cost merely for sake of a good relation with the company. So, the bargaining power of suppliers is significant consideration but at the same time, it’s moderate for HUL.
Threat of Substitutes
The presence of the substitute products can definitely lessen the revenues of the HUL. The threat of substitute products for HUL is high but it’s low. What are the potential reasons behind? The first and foremost thing to consider in this regard is the switching cost for the customers, and definitely, it’s low, as mentioned above. But as a matter of fact, the less availability of the substitutes makes the position of HUL strong. HUL being reliable and well-reputed company has the loyal customers. The reason is that HUL has won the trust of its customers by proffering the high-quality products at fair prices. All these things combine to make HUL the best choice for all the customers.
Threat of New Entrants
The threat of new entrants for HUL is low. What are the potential reasons behind? The first and foremost thing to consider in this regard is the high cost of brand development and the second thing is high economies of scale. As a matter of fact, it is not difficult for the customers to switch to the new entrants if they proffer them the high-quality products at low prices as compared to HUL. But there are several things that serve as a barrier, for instance, brand development for the new entrants isn’t so easy. HUL enjoys a good repute and customers rely on it. All these things make it difficult for the new entrants to enter into this market and win the customer’s trust. Consequently, the HUL remains in really strong position and the threat of new entrants is really low.
References
Wheelen, T.L. and Hunger, J.D., 2011. Concepts in strategic management and business policy. Pearson Education India.
Srivastava, R.M. and Verma, S., 2012. Strategic management: Concepts, skills and practices. PHI Learning Pvt. Ltd…