Example research essay topic: Porters Theories In Australian Coffee Industry - 1,230 words

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Porters THEORIES WITHIN THE AUSTRALIAN COFFEE SHOP INDUSTRY 1 Executive Summary 1 2 Porters Five Forces Model 2 2. 1 Threat of new entrants... 3 2. 2 Bargaining Power of Suppliers... 3 2. 3 Bargaining Power of Buyers 3 2. 4 Intensity of Rivalry. 4 2. 5 Threat of Substitutes. 4 3 Porters Value Chain 5 3. 1 Inbound Logistic and Procurement... 6 3. 2 Operations and Technology. 6 3. 3 Marketing/Sales and HRM 6 4 Porters Three Generic Strategies. 7 5 Recommendations... 8 5. 1 Low entry barriers 8 5. 1. 1 Building a Strong Brand Name... 8 5. 1. 2 Provide service the public expect... 9 5. 1. 3 Build relationship with supplier... 9 5. 2 Bargaining Power of Buyers 9 5. 2. 1 Make switching costs higher 9 5. 3 Lack of industry experience 10 6 Bibliography 11 Fig 2. 1 Analyses of coffee industry using Porters Five Forces Model. 2 Fig 3. 1 Porters Value Chain. 5 Fig 4. 1 Porters Generic Strategies Model... 7 The purpose of this report is to investigate and evaluate the Coffee Shop Industry and one of it key competitors, Gosh, a subsidiary of Brain Ltd. The evaluation of the industry is based on Michael Porters Five Forces Model, which suggests that from the perspective of existing members of the industry, the market is unattractive. Porters other contributions, the value chain and his three generic strategies were used in an analysis of the individual company, Gosh. From these investigations, recommendations have been made on how Gosh can improve its overall profitability, such as developing their brand name and overall customer loyalty.

It must be realised this reports suffered from the limitations of a word count and lack of information about Gosh. With this in mind further investigations need to be made before any of the recommendations are considered for implementation. This model devised by Michael Porter proposes that business-level strategies are the result of five competitive forces in the companys environment (Porter, 1980). These forces as seen in the diagram below include; potential new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products and rivalry among competitors. In order for the model to achieve its designated purpose of evaluating the attractiveness or unattractiveness of entering into such business, one must first define the industry he or she wishes to analyse. Without a clear definition, an attempt to evaluate the forces is futile, as inaccurate hypotheses will be concluded.

In this scenario, the industry is defined as the coffee shop market. The aforementioned attractiveness or unattractiveness depends on whether the forces are being evaluated from the perspective of a new entrant or from an existing player. This report examines the industry from an existing players perspective. The threat of new entrants is based on the extent to which new competitors can enter the market.

In reference to the coffee shop industry, it is a fairly easy market to penetrate. It requires relatively little capital investment (particularly with equipment often being provided by the suppliers for free), there are no government regulations and no switching costs for companys customers. The fact that anybody could open a coffee shop makes it particularly unattractive for those who already exist in this industry. There are a number of suppliers that provide products to coffee shops like Gosh. These include the suppliers of the coffee beans, milk, sugar, equipment and store furnishings. It is well recognised that within Australia, the supply of coffee beans is a cut-throat market where one supplier can be easily substituted for another because coffee beans are not unique.

For example substituting Coffee for Vittoria. Furthermore, no supplier has apparent control of the market. Therefore, if a firm is purchasing supplies from suppliers who [do not] control a large share of [their] market, the suppliers will [not] be able to control prices (McColl-Kennedy, Kiel, Lunch, Lunch, 1994), resulting in little bargaining power. Suppliers of other goods, with fewer suppliers, for example sugar, may have a higher bargaining power over the coffee shops.

Overall, this is an attractive feature of the industry from the players perspective. Within the coffee shop industry there is only one type of buyer, the individual. However, the coffee shop industry must realise that it is extremely hard to differentiate their product. Therefore, in situations where products are incapable of being differentiated, the bargaining power of buyers is strengthened. (Bradmore, 1996). Additionally, the high availability of substitutes (sec 2. 5) also adds to buyers bargaining power. The higher the buyers power, the more unattractive the market for the industry competitors.

Although Australia has about 6000 cafes[according to Patria Jafferies, Domes managing director]there is room in this market for everyone. (Tread gold, 2000 a). This feeling appears to be mutual throughout the larger competitors, with Brett Bound, the managing director of Brain Ltd. (owners of Gosh) agreeing there is room in the market for a lot of companies. (Lloyd, 2000). This relaxed attitude is an advantage to those who are already in the industry. A substitute is something that the consumer will be satisfied with purchasing or using, instead of the product in discussion, in this case, coffee. It is obvious that coffee has a number of substitutes such as tea, soft drinks and milkshakes to name but a few. The switching costs involved for the consumer are low and therefore, the threat of substitutes is said to be high.

This is another unattractive force for the coffee shop industry. Using this method to determine industry attractiveness for existing competitors, the coffee shop industry can be considered fairly unattractive. Looking at the above diagram, there are only two ticks which represent attractive features of the industry, whilst there are three crosses which indicate unattractive forces. Porter (1985) believes that competitive advantage cannot be understood by looking at the firm as a whole.

Therefore, he developed a value chain which provides a method for a company to compose a graphical representation of where their costs and values arise. It allows the company to dis aggregate and subsequently scrutinise all their activities. Across the bottom level of the chain are the primary activities in which the company participates in order to hopefully achieve a profit. The top half of the above diagram shows the support activities that, as the name suggests, provide assistance to make the primary activities possible. The question that each company must ask itself, once it has decided on one of Porters Generic Strategies (see sec 4) is, how will it lower costs or differentiate itself. As seen in the following section, Gosh, have adopted a differentiation strategy.

For each company, the primary and support activities are greatly intertwined. Gosh, is no exception. There are countless links between each of their activities, which is to be expected in any firm which is running effectively, however, this makes discussing them more difficult. Therefore, only a few different links have been discussed. 3. 1 Inbound Logistics and Procurement Procurement according to Bradmore (1996) are the activities involved inthe purchasing of a wide variety of inputs. This is clarified further by Porter (1985) who suggests that it is the function of purchasing inputs not the purchased inputs themselves. This obviously ties in very closely with inbound logistics which revolves around getting the raw materials required for production into the company.

With Gosh as an example, the purchasing procedures use...

Research essay sample on Porters Theories In Australian Coffee Industry