8/7/2019 newas BE

1/4

Using a report published in Mintel in 2009 analyse an industry using the Porter 5 -forces framework.

Discuss whether, as Porter has claimed, the 5 forces can adequately explain all the factors influencing the

attractiveness of an industry.

Introduction

This report has been constructed to examine the effectiveness of the Porters 5 theory by determining the attractiveness of TV industry,

which is a major form of entertainment ( ), by understanding its threats and opportunities. . Unless otherwise stated, all information in this

document has been disseminated from a recent Mintel report (Mintel2009).

INDUSTRY DEFINITION:

In this industry, major market is dominated by four large manufacturers; Sony, Samsung, Panasonic, LG covering about 60% of UK market

and they prove to be leading companies in global context too. Among them, Sony is superior in all the elements a nd has been leading the

market for the past decade. Thus, this chara cterises TV industry as an oligopoly market structure.

In 2008, the revenue earned by the UK TV & Video market was $8.8 billion ( Datamonitor, 2009 ), representing a compound annual growth

rate (CAGR) of 8.2% for the period spanning 2004 -2008. However, market has experienced a sharp slowdown and, in 2009, is expected to

decline substantially. But because of technological advancement like OLED, easy accessible of HDTV, and Bluray, 2010 onwards, market

value is expected to improve.

Among various brands supplied by TV market industry, LCD wins the market by covering 88% while Plasma covers just 10%.This is due to

recession, as consumers are more into buying smaller TV sets than larger one s. The usage of HD Ready TV set is increased from 17% to

54% in 2009 (Mintel , 2009) because of price cuts. While in the distribution channels, electr ical multipliers cover 36% of the market in 2009

which is reduced in comparision to 2008,while supermarkets penetration have increased to 24% in 2009(Mintel, 2009).

PORTERS FIVE FORCES:

The success and failure of an industry is determined by the environment in which it exists . There are lots of component in the e nvironmental

forces but porter has summarised it in five important forces that is popularly known as porters five force model. Thus, relating these 5

forces we can determine the strength and weakness of any industry .

THREATS OF NEW ENTRY:

Recession has caused a great impact on the demand for TV in the UK and many other countries. The Mintel report 2009 has revealed 86%

of customer considered price as an important factor while buying a new TV set. As a result, supermarkets like Tesco, AS DA are offering

own label brand TV sets at a cheaper price and are continuously increasing market share, 7% in 2009 (Mintel report, 2009) ,more over zeroswitching cost supports tho se newly born firms to grow up subsequently. Although brands are getting lower profits, they are trying to

maintain its share by using price cut strategy in order to sell its product in huge numbers. So, high economics scale discourages new entrants

to enter into the industry. Similarly, TV industry has high product differentiation in relation to its quality, price, technology and services

thereby focusing to all the market segments. Therefore , the new entrants have to require huge investment as capital and for research to

compete with the existing brands and also needs high advertisement to make its product stand out in the crowd. Before the recession, the

value of market was growing in remarkable ratio. It i s assumed that after the end of recession period, the demand and value of TV will rise.

One key reason for growth of sales is replacement of CRT and analogy TV by flat screen and digital receiver. Even though customers are

8/7/2019 newas BE

2/4

price oriented during recession period and the TV market is saturated my oligopoly structure with very few players, in the long run new

entries will have to compete with the established brands .

Thus, at present, threats of new entries are moderate for the TV industry.

THREATS OF SUBSTITUTE:

TV is one of the entertainment products, where there are several substitu te from home entertainment to leisure activity. Such alternatives can

greatly impact on TV market. However, laptops and PC are the closest substitutes as they have wider functions in addition to the television

function. For example, in present context most of the teenagers prefer to have a laptop and an i-phone rather than having a TV. Similarly, in

terms of increased use of internet also laptops and PC s are highly substituted with TV set s. Thus, increased broadband penetration, speeds

and variety of services, from video catch -up to sites based on user-generated content have resulted more in the watching the PC than TV

screen. But, TV industry has modified its function by making availability of online video connection and also allowing access to online

content on the big screen which have been able to attract lots of customer s to watch more TV than PC. Even though PC and Laptops are the

substitutes of TV, its very hard for them to overtake the market share s of TV industry because of the satisfaction that customer s gain by

watching TV rather than PC or laptop as the customer wants to watch in bigger screens (more than 60%, Mintel r eport, 2009). And another

reason is that PCs and laptops are generally made for single user at a time whereas TV can be watched by the whole family.

Therefore, the threat of substitution is moderate.

BARGAINING POWER OF BUYER:

Bargaining power of buyer depends upon the number of the buyer related to the TV industry. In this industry, retailers are the one who buy

TVs from the manufacturer. Retailers are huge in numbers , so they can influence the number of sales. Since they have a variety of brands for

sale they dont have to rely upon one brand. Moreover, retailers like ASDA and Tesco are producing their own low cost TV sets and selli ng

them at lower prices, affecting the weaker brands that cannot communicate the same level of qu ality and cant compete on prices. These

reputed retailers who have control over the sales have high bargaining power. Thus, in order to compete with the low cost brands, the

premium brands are using the low price strategy and are also trying their best to communicate its product effectively in the market. But, in

order to reduce the competition for the private label TVs, retailers may cut back on the volume of premium brands product.

Therefore, we can say that buyers power is strong.

RIVALVRY INSIDE THE FIRM:

TV market is oligopoly market with very few players, like Sony 30%, Samsung 25%, LG 15%, and Panasonic 20% of the market share.

Among them, Sony is leading the market in the industry. Here, firms are competing in term of price, technology, quality and brand names to

get best market share s. Here, innovation determine s how strongly it can compete in the market. Sony has the worlds thinnest LCD TV theBravia ZX1. In May 2009, the company also announced that its new line -up of Bravia HD LCD televisions would also come with Sonys

Motion flow technology. This is claimed to provide sharper images than conventional LCD TVs. In June 2008, LG introduced the Scarlet

LG70, as the most sophisticated full HD LCD TV to date . Samsung announced the first production-ready AMOLED TV sets in June

2009. In January 2008, Panasonic displayed its range of next -generation plasma display panels which provides better picture quality, thinner

dimensions and higher power efficiency than previous models . In February 2009, Panasonic introduced Viera Cast, with the next

generation line up of Z1, V10 and G15 series of flat screen televisions. In terms of Price affordability, P anasonic ranks first in comparison to

other brands. In terms of range of the product, Sony offers a wide range of HDTVs that are sold un der the Sony and Bravia brands. LGs

product range in the display arena includes LCD and plasma TVs, as well LCD monitors. The UK division of the Samsung Groups

8/7/2019 newas BE

3/4

television line-up includes LCD TVs and plasma TVs, as well as the newer LED TVs. Panasonic sells LCD and plasma TVs under the brand

name of Viera. But because of recession, price war is also becoming one of the important factors for the firms to cut the market share of

cheaper brands.

Hence, there is intense rivalry between existing firms.

BARGAINING POWER OF SUPPLIER:

Suppliers supply the parts of finished products to the industry. Bargaining power is determined by the number of suppliers in markets, and

the area they cover, quality of raw materials and its cost. For example -the manufacturing cost of new technology such as latest ultra LED

screens is high in comparison to traditional screen types and is also much specialised. Thus, those suppliers which p roduce such items have

high bargaining power over the industry. On the other hand, brand name of i ndustry who buys from suppliers can also determine the

strength of the suppliers. Reputed firms have high range of suppliers option whereas low reputed firms have few suppliers. For example,

supplier supplying TV screens i.e specialised components, have high bargaining power than supplier supplying basic parts. Similarly, in

order to protect its proprietary , technology licensing or copyright protected is being used giving advantage to the suppliers. Companies

manufacturing items of rarity or high demand through limited sourcing channels have a high bargaining power....

Thus, we can say that supplier s power is considerable depending on the product being manufactured (e.g high spec components over basic)

CONCLUSION:

From this analysis it can be concluded that buyer has high bargaining power whereas suppliers have low power. Similarly, threats of new

entry is moderate and has low threats of substitution . But, rivalry inside industry is very high. Thus, it can be concluded that out of 4 forces ,

5 forces shows that market is currently unattractive . However, this analysis only provides a snap shot of the present market conditions.

Nevertheless, after recession, the forces can turn out to be different . This makes it very hard to conclude that after six to seven months, the

picture will remain the same.

Porters five forces model can explain the TV industry to some extent but there are other forces, like technology, that directly influence the

attractiveness of the market. It plays a crucial role in this sector because without better technology none of the factors are going to influence

positively. However, if we use new technology all the forces can be brought under our control and as a result, the market will be more

attractive. In most of the developed countries , due to technological advancement, even TVs with a life span of five to ten years are changed

in every two to three years.

8/7/2019 newas BE

4/4

REFERENCES:

Datamonitor report, 2009

GameTheory.Net, Dominant Strategy, last accessed on 10th November 2009

http://www.gametheory.net/Dictionary/DominantStrategy.html

Mintel Report , 2009