Grantham UniversityIS 242

Using the Five Forces model, select ONE of the forces and describe how a company that makes bottled water would be impacted (minimum 200 words):

Rivalry among existing competitors

1. Threat of new entrants
2. Threat of substitute products and services
3. The bargaining power of buyers
4. The bargaining power of suppliers

Answer:

Using the Five Forces model, I choose the bargaining power of suppliers and will describe how a company that makes bottled water would be impacted. The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the company can be a source of power over the company when there are few substitutes. If you are seling water and there is only one person who sells water you have no alternative but to buy it from them. Suppliers may refuse to work with the company or charge excessively high prices for unique resources. Potential factors could be the supplier switching costs relative to company switching costs, degree of differentiation of inputs, impact of inputs on cost or differentiation, presence of substitute inputs, strength of distribution channel, supplier concentration to company concentration ratio, employee solidarity (e.g. labor unions), supplier competition or the ability to forward vertically integrate and cut out the buyer.

The idea is that the bargaining power of the supplier in an industry affects the competitive environment for the buyer and influences the buyer’s ability to achieve profitability. Strong suppliers can pressure buyers by raising prices, lowering product quality, and reducing product availability. All of these things represent costs to the buyer.

Furthermore, a strong supplier can make an industry more competitive and decrease profit potential for the buyer. On the other hand, a weak supplier, one who is at the mercy of the buyer in terms of quality and price, makes an industry less competitive and increases profit potential for the buyer.