Wednesday, January 16, 2008

Porter's 5 forces

Currently in the video renting market buying power is high. There are many stores to choose from as well as online locations to choose where to rent videos from. Suppliers power when new movies are released are high, and tapper off when the movie has been released for sometime and the general consumer is waiting for what is new to hit the shelves. Currently online markets are perceived as a high threat to many video retailers. Many consumers hate waiting in line or have had a negative experience in purchasing in store so they go online to rent their movies from several online retailers. Apple is now revolutionising the market with the capability to rent movies through your itunes then being able to watch it on your ipod, or itv for a limited amounts of days. For anyone trying to break into the business of being a video rental vendor has to provide some type of new experience that others are not. Redbox, who's owned by McDonald's, has done a fantastic job in marketing their new video rental systems. They are able to put a RedBox's anywhere where they can get permission. With little to no maintenance and with a very usable interface this makes the ideal solutions for not having to hire a store stuff, and having to have a very limited call center to take comments, questions, and other general customer concerns. Redbox also does extensive email campaigns to show when new movies are coming out, and what types of specials they are offering. Besides Redbox you also have Blockbuster, Hollywood Video, Netflix, and soon to be Apple, as the main competitors in the video rental industry. Blockbuster adapted the idea that Netflix has with being able to rent online. One advantage that Blockbuster has is that if the DVD is defective in anyway, you are able to go to a store and swap it out for a new DVD. With Netflix you do not have such the convenience, but rarely these issues do arise. I think that each company is listening to the consumers thoughts and concerns, because the buyer power is so high. They are wanting to provide the best possible service so that they can generate repeat business, and more revenue for their company. If you could find a leading edge that no one else has in the industry you would be able to jump to the top of the lead competitors and be able to stick around and fight for more of an edge in the market to take away their customers and add them to be your new loyal customers. Porter's five forces is an invaluable tool in when looking to see what you can do in order to get into an industry. You need to look at all five key forces that help drive a business so that you can make money, and have a successful business. If you do not look at the five factors then you can easily find yourself in financial ruin. 90% of all new businesses fail within the first month due to the lack of knowledge of Porter's principals. They are a key for anyone deciding to start a new business, or to grow the one that they already have.

2 comments:

Mike said...

I'm not so sure that the buyer power is high in this situation. When applying Porter's five forces the buyer in this situation are the end users (customers). No individual customer has the power of vertical intregration nor does the single consumer posses any real power of price negotiation. Buyer power in this situation would actually be low however the threats of new entrants and substitutes could be considreed high.

Elangovan said...

Mike,

Buyer power is high and it has been proved e.g Reed Hasting has taken back his new plan which plummeted Netflix share to $110/share now.
So Porter`s five force model is correctly used in blog.