3.2 Porter’s Competitive Forces ; Generic Response Strategies
For years, corporations have taken an in depth look into their own success and ways to remain successful amidst the competition. This type of analysis is helpful in determining current and potential threats that may affect the success of their business with the ever-changing market. A common tool used when surveying a competitive industry is the use of Porter’s Five Forces Model. This competitive analysis tool, which uses five categories, allows a company to identify the potential for success of a business based on other companies within the same industry. The five factors include: Intensity of rivalry, threat of new entrants, the threat of substitute products or services, bargaining power of buyers, and the bargaining power of suppliers. (Martin, 2018).
Intensity of Rivalry
By examining the intensity of rivals within the market, this force looks at the number of and products or services produced by the competition. (Martin, 2018). Proctor & Gamble, Avon, Estee Lauder, Coty, Shiseido, and L’Oréal are all strong competitors within the beauty and skin care industry, many of which offer similar products. The saturation of the market has led to a competitive rivalry within the beauty and skin care market. (insert info on beauty trends)
Threat of New Entrants
The threat of new entrants examines the ease of which a company can jump into the industry as a viable competitor. This force is determined by barriers to entry, which include a scaleable economy, the capital needed for production, brand recognition, and government regulation and policies. (Kasi, 2017). The threat of new entrants increases with an increase in ease to enter a market. Within the beauty and skin care market there, is a medium to high
Threat of Substitute Products
The ability of a consumer to substitute a product with an offering from its competitor is an important piece to Porter’s Competitive Model. This force allows a corporation to examine how easy it is for a consumer to begin use of a competitor’s product of service. The threat for substitute products analyzes the number of competitors within the market, as well as their product price, product quality, and business profits. This information allows a company to determine a competitor’s ability to lower their prices. The threat for substitutes is directly related to switching costs and a buyer’s ability to choose an alternative. (Martin, 2018).
Bargaining Power of the Buyer
The bargaining power of buyers observes the buyer’s ability to control the quality and price of products that a company produces. Customers experience higher bargaining power when there are low switching costs and when there isn’t much variability between the product offerings between companies. (Martin, 2018). L’Oréal’s product offerings are similar to that of other corporations. For example, customers shopping for mascara have a plethora of corporations to purchase from, some of which could include Estee Lauder or Revlon. If a customer purchases from a company other than L’Oréal due to price or quality, they will not incur switching costs. If this happens enough, Loreal could see a dip in profits. This shows that the buyer has power to influence the product quality and price that L’Oréal charges for its products.
Bargaining Power of the Suppliers
Looking at the bargaining power of a supplier, we are able to determine the ability of a supplier to control the price of its goods. This force also looks at the number of suppliers available to a corporation. If a supplier can effectively raise their price, that would negatively affect L’Oréal’s profits. (Martin, 2018). But as we see in the case of L’Oréal, their suppliers experience low bargaining power. This is because L’Oréal has many suppliers that are producing their products. If a supplier decides to raise their price, L’Oréal can simply choose another supplier to produce materials needed for their products. (UK Essay, 2013).
Combating These Forces
The industry of beauty and skin care is constantly evolving. Two of the trends that have jumped in recent years are online sales, natural skin care, and the “doll look”. Stefano Curti, global president of Markwins Beauty Brands reported that growth in the beauty injury is 50% in stores and 50% online. For a corporation to remain successful, they must recognize these trends and create paths to meet the demands of the consumer. During 2018, Loreal has been involved in the acquisition of 6 companies to enable them to meet the demands of consumers as well as remain successful in a competitive market. The acquisitions included companies with all-natural skin care products, products to target skin dermatological diseases, designer fragrances, Korean makeup and fashion, professional hair color, in addition to augmented reality technologies. ( Loreal ). These latest deals allow loreal to grow and sustain their firm hold as a successful corporate giant in the beauty and skin care industry.