Johnson and Johnson is an American multinational that works for manufacturing and selling of medical devices, health products, beauty products and pharmaceuticals. The company was founded in 1886 and is involved in selling of their products worldwide over the years. The company aims to inspire and change people’s lives around the world, claiming this as a part of its vision.
Doing the porter’s five forces model analysis of Johnson and Johnson, we will determine the current position of the company in their own competitive industry in terms of five forces acting upon it externally.
Threat of New Entrants
The barriers to this industry include the expenses involved in researching to enter and survive in this industry, the expense involved in production and manufacturing of medicines and medical devices, and most importantly the cost and effort involved to maintain their manufacturing process as well as to establish their name in the industry. All these factors hinder the easy entrance of new competitors in this industry. Moreover, Johnson and Johnson has been a part of the market for decades now and they have maintained their brand name and their customers trust them and are very loyal to them, so any new entrant in the industry can pose very little threat to the name and business of Johnson and Johnson. So, the threat of new entrants for Johnson and Johnson is low.
Threat of Substitutes
There are very few substitutes available for Johnson and Johnson in the market, especially when it comes to their medicines. Some of the substitutes that the consumer may consider buying can be store-brands and natural herbs. Natural herbs are very rare and expensive so they pose a very low threat to Johnson and Johnson. When it comes to beauty products, Johnson and Johnson faces somewhat more competition as it is a competitive industry and some of the competitors have also established their brand names as well. Despite these brands available to the customers, Johnson and Johnson does not lose out on its loyal customers. So, Johnson and Johnson faces moderate threat from substitutes available to the customers.
Bargaining Power of Buyers
Buyers of Johnson and Johnson products include individual buyers, doctors, wholesalers, retailers, pharmacists and insurance companies. When it comes to wholesalers or retailers, there are very few suppliers available to them that have actually established a well-known brand name throughout the world so they will try to maintain good relations with these pharmaceuticals so their business keeps on going. When it comes to doctors, physicians, pharmacists and insurance companies, they also need to be associated with a credible name such as Johnson and Johnson so the bargaining power is low in their case as well. Individual buyers have some bargaining power because the switching cost for them is really low but then again, because of such a good name that Johnson and Johnson has gained for itself, the bargaining power of customers remains low. So, overall the bargaining power of buyers is low in case of Johnson and Johnson.
Bargaining Power of Suppliers
The suppliers for Johnson and Johnson include the suppliers required in the manufacturing of medical equipment as well as medicines. The company makes sure that it chooses its suppliers very carefully as they need standardized as well as customized suppliers. So they need to have credible and reliable suppliers. Johnson and Johnson usually has contractual agreement with the suppliers to maintain long-term relationships. The suppliers have huge costs involved as well, and they would never want to lose out on such an established name worldwide. The bargaining power of suppliers in case of Johnson and Johnson is low.
Competitive Rivalry
The competition in this industry is high in terms of the companies available in the market. But they are not competing in terms of price as usually the prices of the medicines are supposed to stay stable due to certain regulations imposed by governments around the world. Usually in this industry, the companies merge or acquire companies that tend to increase their business, especially in the medical industry. They also try to diversify their range of products in the market. In such terms, Johnson and Johnson is performing well as is competing really well globally. So, the competition in the industry for Johnson and Johnson is moderate.
Reference
Products. Retrieved September 14, 2017, from https://www.jnj.com/healthcare-products
Vij, R. (2017, May 28). How Johnson And Johnson (JNJ) Makes Money? Understanding JNJ Business model. Retrieved September 14, 2017, from https://revenuesandprofits.com/how-johnson-and-johnson-makes-money-understanding-jnj-business-model/
Johnson & Johnson Strategic Framework. Retrieved September 14, 2017, from https://www.jnj.com/strategic-framework