uk/news/business-16817254 (accessed 11th March 2013) Chart2: guardian. Therefore Tesco reacted on a possibility of substitution. Tesco was one of the first supermarkets who recognized the market gap and not only offered online shopping but also offered to buy a whole meal with one mouse click. This is especially a big threat due to the fact that the society changed in a way where everyone got busier and wants to buy products online.Įspecially the grocery market was excluded from this change for a long time. Threat of substitutes Substitutes enable Customer to switch products and can therefore lead to a decrease in demand. Due to the fact that Tesco as the 14th largest company in the UK they have a high impact on the pricing of their suppliers and can therefore demand a low pricing, which is also based on how easily they can switch their suppliers. Bargaining power of suppliers In general it can be said that the power of suppliers is higher the more distinctive the product they sell is.Ĭompared to the products Tesco sells is the suppliers power comparatively low. Basically means that that the buyers power is comparatively low. Tesco successfully pursues the strategy of owning shops nearly on every street corner in Edinburgh, which makes it hard for customers not to buy groceries at Tesco.
It can be said that one main issue for Customers is to seek for the supermarket easiest to access.
This means regarding to the buyers as customers they should have a high buyers power when there are many substitute products available, this is especially the case with the three big players, which allows customers to easily switch between the different supermarkets. Power of buyers The main intention of buyers is to seek for the lowest price available. Overall it can be said that there is a comparatively big rivalry amongst the existing competitors. Tesco tries to overcome his competitors by launching home brand products in a wide price range to meet their customers’ needs. This is due to the fact that all supermarkets have similar products. Intensity of rivalry among competitors Generally it can be said that there is a small market growth and the three big players fight for gaining new market shares, while ASDA (+ 0,4%) and Sainsbury’s (+ 0,6%) increased their market share Tesco (- 0,6%) lost some to his competitors. Nevertheless the total market share of ALDI is 3,5% which clearly shows that it is relatively hard to enter the grocery environment and it is only possible to do so up top or down bottom. Nowadays ALDI achieved a growth of about 10% compared to the following year. Based on the fact that they are one of the key players in Germany, they were able to invest high capital in the UK. Although the grocery environment is highly competitive it was possible for the discounter ALDI and LIDL to enter the market as new entrants. Threat of new entrants The UK grocery market is dominated by the three big players Tesco, Sainsbury’s and ASDA, of which Tesco has the most market share (29,9%). Read next: Barriers to entry: Factors preventing startups from entering a market References
Positioning an industry’s products or services against the substitutes may take place via collective industry actions (for example, sustained advertising by industry participants). Identifying substitutes involves searching for other products or services that can perform the same function as the industry’s product or service. Substitutes can create intense competition during normal economic times, and reduce potential profit increases during positive economic times.
Demand for substitutes can also reduce the demand for industry products and services. As the price-performance alternative offered by substitutes becomes more attractive, it becomes even more difficult for those firms to make a profit. Substitutes limit an industry’s potential returns by placing a ceiling on the prices that firms within that industry can charge to make a profit. Substitutes, potential returns, profits and competition Threat of substitutes is one of the five forces that determine the intensity of competition in an industry. Threat of substitutes (from Porter’s five forces analysis) occurs when companies within one industry are forced to compete with industries producing substitute products or services.
THREAT OF NEW ENTRANTS IS HIGH WHEN FREE
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