Porter’s Five Forces Model

Companies use different tools to gain a competitive advantage over their rivals. Some of these tools include porter’s five model, the blue ocean strategy, and Ansoff’s matrix. This essay aims to discuss the usage of these strategies in the educational, tourism and entertainment and agricultural sectors.

Porter five forces model is a model of analysis that can be used to analyze a specific industry and gain an understanding of the underlying profitability of a trade. It presents five basic forces that affect different sectors (Shinkle et al., 2013, p. 1244). In the Australian Agricultural Company Limited, the management can utilize Porter’s five forces to analyze how the five competitive forces impact on the profitability and establish a strategy for its operations.

Australian Agricultural Company Limited is a leading Australian enterprise in the food, beverages and Tobacco sector. Over the decades, the company has redefined unique ways of doing business in the agricultural industry. As explained by Hunt et al. (2014, p. 130), this company is listed in the AAX (Australian Securities Exchange, with a stock market sticker “AAC.”

The porter five forces model entails the five basic forces that can shape a business strategy. This model was developed by Michael Porter, who listed threats of new entrants, threats of substitutes, suppliers bargaining powers, rivalry among the existing market players and buyers’ bargaining powers as five basic forces that can affect strategic development of a business.

To start with, new entrants in the agricultural sector include foods, tobacco and beverage dealers. Through lower pricing strategy, this company has managed to reduce costs and provide new value propositions to its clients (Hunt et al., 2014, p. 130). Although many agricultural companies have entered the industry, the Australian Agricultural Company Limited has tackled these challenges by innovating new services and products. This not only brings new clients but also gives the old clients a reason to purchase the products of the company.

Also, the company has majored in building economies of scale, which has enabled it to lower the fixed costs per unit, thus enabling it to be able to offer its products at relatively lower prices. Furthermore, by spending more time and money on research and development, the company has been able to beat the competition as new entrants tend to be less likely to enter a diverse industry occupied by well-established players.

Almost all businesses in the agricultural and foods, beverages and tobacco industry purchase their raw materials from many suppliers. Suppliers who dominate the market can, therefore, decrease the company’s margins. The existence of powerful supplier bargaining power affects this sector by lowering the overall profitability of food, tobacco, and beverage. The company has majored in establishing efficient supply chains consisting of multiple suppliers to weaken the bargaining power of the suppliers (Allen et al., 2014 p 101). Also, through conducting experiments on product designs using different materials, the company has been able to control its expenditures on raw materials. Whenever a raw material’s price goes up, it shifts to another suitable substitute.

Threats of New Entrants

Buyers tend to be demanding. They usually want to purchase the best market offerings available while minimizing their expenses. This exerts excellent pressure on the company’s profitability in the long-run. The more powerful and smaller the buyer base is, the higher the bargaining power (Ellram, 2013, p. 29). In the agricultural industry, many players have dominated the market. Therefore, there is a high buyer power. The Australian Agricultural Company has majored in providing its products at low costs to develop customer preference.

Research has proven that when a product can meet similar needs of a customer in different ways, then the profitability of the industry is bound to suffer. The threat of substitution is usually high when it avails a product proposition which is of more quality than the existing product, (Ellram, 2013, p. 29). About Australian Agricultural Company Limited, the organization has not made outstanding efforts to curb the threats posed by other substitute products. However, if the company can be more service oriented than product oriented, then it can win customer trusts by offering excellent services. The company should also concentrate on what the customer needs, rather than what the customer purchases to retain them.

The stronger the rivalry among the existing market players, the lower the prices and consequently the lower the profitability of the industry. Ideally, the agricultural sector is very competitive. Therefore, Australian Agricultural Company Limited strives to beat the competition by devising some strategies as discussed in the following paragraph:

The company has built a sustainable differentiation. For instance, it has been known for its high-quality tobacco, beverage, and foods. These products have formed the trademark of its brand (Hunt et al., 2014, p. 130). Also, the company has been able to build competitive scales by conducting appropriate competitive strategies.

According to Cheng (2013, p. 52), the primary strength of Porter model is that it offers a model of analyzing the market forces affecting different industries. However, its weakness is that it does not take into consideration the non-market forces.

This is a planning tool that enables a business to establish its market growth strategies. It postulates that an enterprise’s efforts to grow depends on whether it markets existing or new products and services in existing or new markets (Hussain et al., 2013, p. 196). The matrix presents four primary market approaches which entail penetration strategies, product development, diversification, and market development strategies.

Bargaining Power of Suppliers

The tourism and entertainment industry is highly competitive as it consists of many players. Marriot Hotel is one of the leading lodging businesses with around 4400 properties in more than 86 states Dzhandzhugazova et al., 2016, p. 10387). It hosts tourists from many countries providing accommodation, foods, dines and drinks and entertainment services. The company’s headquarters are based in Maryland USA.  The following figure shows the Ansoff’s matrix analysis for Marriot Hotel

Ansoff’s matrix has different strengths and weaknesses. Some of the strengths of this matrix are- it lays down the possible growth approaches and concentrates on the business. Also, the matrix displays the aims and strategies needed for an organization to succeed (Vignali, 2014, p. 75). Furthermore, the matrix establishes a risk awareness culture in a firm. On the other hand, some weaknesses of this matrix are that it does not show the market developments. It is also only a theoretical model which can result in a situation whereby an enterprise makes a lot of analysis that it does not formulate a decision.

The Blue Ocean approach is based on a study conducted by Chan Kim and Renee. They concentrated in analyzing the standard determinants of the blue oceans and the critical distinctions that separate the winners from mere survivors and those that fall in the red ocean (Agnihotri, 2016, p. 519). To provide a good understanding of the blue ocean strategy, this essay has discussed Peirce College, which is found in the educational sector.

As explained by Bourletidis (2014, p. 645), Peirce College pursued a blue ocean strategy to move into the education sector. It pursued a differentiation strategy based on low costs to gain new customers. It did this by analyzing the strategic groups existing within the post-secondary education.

Pierce college is located in Philadelphia USA. It was founded in the year 1865 to provide training to the returning American war veterans (Mattern & Patterson, 2013, p. 3). In 1991 Arthur J. Lendo was appointed as the president of Peirce College. His main aim was to swim out of the red ocean of me-too type of competition. The college, therefore, started its journey by identifying the unsatisfied needs of the non-clients (Mattern & Patterson, 2013, p. 3). During this time most learning institutions focused on serving the traditional-age learners just like Peirce. Peirce, however, realized that a large pool of students was either underserved or overlooked. For instance, the working adults experienced difficulties to complete non-campus degrees while going on with their duties at work.

Bargaining Power of Buyers

The College reconstructed the boundaries that existed in the market by concentrating on the strategic groups of tertiary education. Ideally, the traditional undergraduate education consisted of two strategic groups- the junior colleges and the community (Mattern & Patterson, 2013, p. 4). The junior colleges were offering two-year associate programs while the accredited colleges and universities were offering four-year programs.

To grow demand, the college analyzed the unique strengths of these strategic groups. It, therefore, started offering four-year degree courses using different programs- online, onsite, and on campuses programs (Mattern & Patterson, 2013, p. 6). The on-campus programs were taken at Philadelphia whole the on-site programs were taken in the community and corporate cluster locations. The online, community and corporate programs were convenient for the adult learners who could work while pursuing their studies. This made the online enrolment to increase by more than 300 percent.

A significant strength of the blue ocean strategy is that a firm creates a new and attractive industry. Therefore, the threats of new competitors entering the markets and substitutes are low, and the ability of the suppliers to bargain for higher prices and a customer is also low (Gobble, 2013, p. 63). On the other hand, with time other firms may imitate the new strategies making the ocean to turn red and necessitating the company to create another blue ocean.

In a nutshell, this essay has provided a vivid description of three strategic tools- the Ansoff Matrix, Blue Ocean Strategy and the Porter’s and how they have been used in different sectors like the agricultural sector, educational sector and hotel and tourism sector.

References

Agnihotri, A., 2016. Extending Boundaries of Blue Ocean Strategy. Journal of Strategic Marketing, 24(6), Pp.519-528.

Allen, B., Porter, D. & Thompson, G., 2014. Development in Practice (Routledge Revivals): Paved With Good Intentions. Routledge. Pp. 100-420

Bourletidis, D., 2014. The Strategic Model of Innovation Clusters: Implementation of Blue Ocean Strategy in a Typical Greek Region. Procedia-Social and Behavioral Sciences, 148, Pp.645-652.

Cheng, D.S., 2013. Analyze the Hotel Industry in Porter Five Competitive Forces. Journal of Global Business Management, 9(3), P.52.

Dzhandzhugazova, E.A., Blinova, E.A., Orlova, L.N. & Romanova, M.M., 2016. Innovations in Hospitality Industry. International Journal of Environmental and Science Education, 11(17), Pp.10387-10400.

Ellram, L.M., Tate, W.L. & Feitzinger, E.G., 2013. Factor?Market Rivalry and Competition for Supply Chain Resources. Journal of Supply Chain Management, 49(1), Pp.29-46.

Gobble, M.M., 2013. Creating Change. Research-Technology Management, 56(5), Pp.62-66.

Hunt, W., Birch, C., Vanclay, F. & Coutts, J., 2014. Recommendations Arising from an Analysis of Changes to the Australian Agricultural Research, Development and Extension System. Food Policy, 44, Pp.129-141.

Hussain, S., Khattak, J., Rizwan, A. & Latif, M.A., 2013. ANSOFF Matrix, Environment, and Growth-an Interactive Triangle. Management and Administrative Sciences Review, 2(2), Pp.196-206.

Mattern, K.D. & Patterson, B.F., 2013. Test of Slope and Intercept Bias in College Admissions: a Response to Aguinis, Culpepper, and Pierce (2010). Pp. 1-130.

Shinkle, G.A., Kriauciunas, A.P. & Hundley, G., 2013. Why Pure Strategies May is Wrong for Transition Economy Firms. Strategic Management Journal, 34(10), Pp.1244-1254.

Vignali, G., 2014. The Mix Map Modelling Approach: Research Application–A Thought for the Service Industry. International Journal of Business and Globalisation 10, 12(1), Pp.75-81.

Wechsler, H.S., 2017. The Qualified Student: A History of Selective College Admission in America. Routledge. Pp. 1-15