The objective of such an analysis is to investigate how the organisation needs too form its strategy in order to develop opportunities in its environment and protect itself against competition and other threats (Lynch, R 1997). The report will use the Porter Model to give an idea what kind of influences exists and how a company can deal with it. Fig. 3 Porter? s Five Forces Model Bargaining power of suppliers Source: see Chapter 7 To what extend have the suppliers of NEXT power over the company?
In the case of NEXT the influence is limited because there are a lot of providers in this sector. If a supplier were to ask for an increase in his price, or for other better conditions, his customer could easily replace him in a short period of time. Therefore mutual dependence is rated low. Bargaining power of customers So far as the customer is concerned he has probably the most power because it is he who buys the product and spends his money. The impact of an individual buyer who goes shopping at a branch and seeks price cuts is likely to be negligible.
However speaking more generally, if the phenomenon was multiplied by many thousands of price conscious customers who are not willing to pay the ticket price, management will need to cut prices to avoid losing sales. Because clothing is not very item specific – a pullover is a pullover – whether you buy it from NEXT or Marks and Spencer. The only way to attract consumers to buy a company? s products instead of the competition? s, is to add value, such as label, style, price or quality. But still there is no guarantee that NEXT will perform better than other clothing companies.
The customer decides which product he likes – not the company. Threat of new entrants to the industry A threat to NEXT are the new competitors entering the market. Maybe not the small ones because there is a lot of capital needed to go head to head with NEXT – the threat comes more from the big labels, department stores or chain companies outside the UK. Companies such as Calvin Klein and Donna Karan, for example, have money, knowledge and the power to enter the clothing market in a short period of time.
Both which opened their 8,000 to 10,000 square feet stores on New Bond Street or Ralph Lauren which opened his 45,000 square feet store in central London demonstrate how to infiltrate a rather conservative domestic market. Additionally, US catalogue retailers are venturing into the UK market. Lands? End, the ninth biggest mail order company in the US, had opened a subsidiary in the UK but also struggle from the strong rivalry, sales are down by 1. 9% to USD 143m (2000). Threat of substitute products or services
Another threat in the eyes of Michael Porter is the issue of substitution. Speaking of the clothing retail market this problem is not a big issue. A pullover can be a substitute for a jacket, or trousers for skirts, but since NEXT is provider of all these items anyway so the impact of a substitute is limited. However the threat in this market is that NEXT fails to note these trends. The Customers would substitute NEXT with a trendier company if their products are not stylish, interesting or mainstream enough to attract customers or the timing is wrong.
Rivalry among current competitors There exist a huge number of clothes retailer in the UK approximately over 25,000 combined with other outlets make them more than 45,000. This indicates a high rivalry between competitors. In this phase of the market cycle where there is more or less no growth, competition is often price-based and therefore very aggressive. To build customer loyalty with price cutting strategies is very difficult if not impossible.
That means consumers are looking for the best offer with regard to price, service and quality. If NEXT wants to increase market share it must take sales from its competitors and that increases rivalry. So it is a kind of price spiral where companies have to cut prices to sell their products. This leads to decreasing margins and probably to less competitors. This can be seen in the grocery shopping sector where competition was such though that only a few big companies survived.
Another issue are the high export exit tariffs. If a company like NEXT, Marks & Spencer or C&A want to leave the UK market it means they have to sell all their branches and get rid of most of their employees. This causes a lot of problems in terms of the relevant trade unions, bad publicity or cost for developing a social viability plan. These are some reasons why companies mostly stay in their known marketplace instead of leaving them for new opportunities