Read CASE 14: THE BOSTON BEER COMPANY: POISED FOR GROWTH C99 to C110
1. Apply Porter’s Five Forces on the general Beer Industry.
The threat of new entrants:
The bargaining power of buyers:
The bargaining power of suppliers:
The threat of substitute products and services:
The intensity of rivalry among competitors in an industry:
2. Identify and compare the main strategic groups in the beer industry?
3. Identify the resources and capabilities of the Boston Beer Company. Which of these resources create a sustainable competitive advantage?
Analysis of the industry environment
Porter’s 5 Forces
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The Competitive Environment
The competitive environment consists of factors in the task or industry environment that are particularly relevant to a firm’s strategy.
• Competitors (existing or potential)
• Including those considering entry into an entirely new industry
• Customers (or buyers)
• Suppliers
• Including those considering forward integration
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Porter’s Five Forces Model of Industry
Competition
Exhibit 2.4 Porter’s Five Forces Model of Industry Competition
Source: From Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Special Issue on HBS Centennial.. Harvard Business Review 86, No. 1 (January 2008), 78-93. Reprinted with permission of Michael E. Porter.
Jump to Appendix 1 for long description.
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The Threat of New Entrants
The threat of new entrants – possibility that the profits of established firms in the industry may be eroded by new competitors.
Depends on existing barriers to entry:
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
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Question
You are considering opening a new pizza restaurant in your community. What would be the threat of new entrants?
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The Bargaining Power of Buyers
Buyers have bargaining power.
Buyers can force down prices, bargain for higher quality or more services, or play competitors against each other.
▪Buyers are oftentimes not the end consumers!
Buyer groups are powerful when:
• Purchasing standard products in large volumes.
• Profits are low & switching costs are few.
• Backward integration is possible.
• Buyer’s product quality is not affected by industry product.
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The Bargaining Power of Suppliers
Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of purchased goods and services.
Supplier groups are powerful when:
• Only a few firms dominate the industry.
• There is no competition from substitute products.
• Suppliers sell to several industries.
• Buyer quality is affected by industry product.
• Products are differentiated & have switching costs.
• Forward integration is possible.
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The Threat of Substitute Products &
Services
Substitute products & services limit the potential returns of an industry.
• Substitutes come from another industry, not the same industry.
• Substitutes can perform the same function as the industry’s offerings.
• Substitutes place a ceiling on prices that firms in an industry can profitably charge.
The more attractive the price/performance ratio, the more the substitute erodes industry profits.
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The Intensity of Rivalry among
Competitors in an Industry
Rivalry tactics include price competition, advertising battles, new product introductions, increased customer service or warranties.
Interacting factors lead to intense rivalry when:
• Numerous or equally balanced competitors
• Slow industry growth
• High fixed and/or storage costs
• Lack of differentiation or switching costs
• Capacity augmented in large increments
• High exit barriers