Thefive forces of completion model otherwise known as Porter’s five forces areused to determine how profitable and attractive an overall industry is. Anindustry is considered attractive if the threats of the five forces areconsidered to be fairly low. The five forces include threat of new entrants,threat of substitute products, bargaining power of suppliers and buyers, andrivalry among competitors. Within this report I will explain each of the fiveforces and their ratings in regard to the Ice-Fili, a Russian ice creamindustry.
Also, I will include suggestions to Ice-Fili on how to lower threatswithin the industry. New Entrants:Thethreat of new entrants was a dominating issue for Ice-Fili due to weak barriersto entry.Weakbarriers to entry made it difficult for Ice-Fili to remain one of the top icecream producer in Russia. In 1991, Russia decided to institute an open market economy.This policy allowed industries to access any market freely. Industries such as Ben ‘s and Baskin & Robbins took advantage of this open market policy inorder to increase capitalization. In turn, this created highercompetition with local industries such as Ice-Fili who experienced a heavy dropin ice cream sales and production. Overall, the threat of new entrants would beconsidered high due to its weak barriers to entry.
Substitutes:Thethreat of product substitutes becomes high when outside industries create productsat a lower cost with similar benefits. This threat increases the amount ofcompetition from industry to industry. Product substitutes that have beencompeting with the ice cream industry include items such as sodas, yogurts, chocolates and other confectionarycandies. These substitutes may serve the same purpose to the consumerwhich is the indulgence and intake of a sugary substance. In 2000, the production of icecream declined 3.5% from the year before compared to the 23-25% increase in competingproducts.
Overall the threat of product substitutes is considered to bemedium high in regard to the ice cream industry. The ability to purchase itemsat a lower price that essentially provide the same amount of benefits is thereason for higher competition. Supplier power:Thepower of suppliers in the ice cream industry may be considered low. Thesupplier power is low when referring to ingredients that compose the ice creamitself. Ingredients such as milk, butter, and sugar are sold as a commodity. Thismeans these essential ingredients can be purchased for a lower price through differentsuppliers at any time. Having the ability to purchase from different supplierswho may offer lower prices than others decrease the suppliers actual bargainingpower. Buyer power:As distributors, Ice-Fili has the powerto decide what products are available to the consumers which is an indicator ofpossessing high bargaining power.
As mentioned previously there are about 300active ice cream industries in Russia. The domestic ice cream industries inRussia have provided similar products that have little differences. Consumers arethen able to choose one product over there other without second guessing. Pricesensitivity is also a factor in bargaining power.
Small differences in pricingof a product will not change consumer buying behavior so the price sensitivity islow. Competitors: Rivalry amongst competitors is likely to behigh when there is a large number of similar functioning industries. In 2002, amassive 300 ice cream industries were active in Russia. Many competitors reliedheavily on advertising and marketing to ensure consumers became familiar withtheir products. The more familiar consumer became with these new brands themore likely these industries would be able to convince distributors to sell theirproducts resulting in higher profits.
Ice-Fili did not spend near as much moneyadvertising compared to its competitors. Because of Ice-Filis lack ofadvertising, consumers were more prone to choose other options since they weremore well-known ice cream brands. The competition and rivalry amongst existingindustries would be considered high because of domestic and foreign competition.
Final Thoughts:Through analysis of Porter five forces, Ibelieve that the overall attractiveness of the ice cream industry is fairlylow. This industry has high threat of entrants, buyer power, high productsubstitutes, and high rivalry amongst competitors. The only benefit this industryseems to have is low supplier power.
The risks within this industry outweighthe benefits making it unattractive
