The higher the startup costs the lower the threat of entrants. Capital can be low if ‘leasing rather than buying 4) Access to distribution channels: How many retail outlets re owned by manufacturers. The more retail outlets owned by manufacturers the lower the threat of entrants. No problems as an airline business can use the Internet to sell title 5) Government action and Legislation: Patent protection (does the government stop other businesses from copying the products or services of your business) The higher the government protection the lower the threat of entrants. ) Experience: Early market entrants gain experience more quickly. The more experienced competitors in the industry the lower the threat of entrants. There is no government protection for the Airline industry, although some brand protection does exist. However there is increased government restrictions to limit noise (including restrictions on types of aircraft used and limits on number of operations). Many experienced competitors exist in the airline industry. Some smaller newer operators have also been introduced.
Overall the threat of entrants is high as there is a reasonably low break even point, a low capital investment, easy access to distribution channels and little government protection. Force: Threat of Substitutes Product for product substitution (e. G. Email for postal service) The harder it is to place your product with another product the lower the threat of substitutes. Low product for product substitution [unlikely to replace airline travel (with for egg, the train or bus)] Generic Substitution: products or services compete for disposable income. (e. G. Cars, holidays etc. The more important your product to the consumer and the more they need to spend money on it, the lower the threat of g Generic stimulation Many tourists consider airline travel a luxury and not important. Substitutes. Therefore will spend money on other more important products before spending money on Airline tickets. Threat of substitutes is medium in force as product for product substitution is low and generic substitution is high. Force: Bargaining Power of Buyers The Buyer Power is high for your business when: The Industry has a large number of small operators. Ђ There are many sources of supply due to an undifferentiated product. If there are a large number of undifferentiated products the buyer has more choice and therefore more power. As a result buyers will choose based on the lowest price. Higher buyer power caused by many medium and large businesses competing for the same market tit undifferentiated products. This means the buyers have more choices and will choose the product with the lowest price. Bargaining Power of Buyers is high.
Force: Bargaining Power of Suppliers The Supplier Power is high for your business when: 1) The cost of changing suppliers is high – suppliers may produce highly specialized products. 2) The supplier Brand is powerful – E. G. A retailer requires a particular brand. If the cost of changing suppliers is high and the supplier brand is important then a business finds it difficult to choose other suppliers and therefore can not by any rice increases passed on by suppliers. Boeing + Airbus produce highly specialized products for the Airline industry with sophisticated maintenance processes and procedures.
Therefore changing brands is expensive. Gas supply is also very expensive as suppliers ca control costs The Airbus and Boeing brands are powerful in Airline Industry. Customers of South West Airlines trust these brands and therefore will may be concerned if South West Airlines changes to another plane manufacturer. Bargaining Power of Suppliers is high. Force: Competitive Rivalry 1) Balance of Competitors: More competitive if same size of impasses. Less competitive if dominant companies and smaller companies who operate. 2) Market Growth Rates: Effect of the Product Lifestyle.
Low market growth rates at product maturity stage means more competition. This occurs when there are a lot of the same product competing for the same market. 3) Differentiation: Low differentiation of products or services means more competition. High Balance – Airline industry is made of similar sized operators offering similar level of service- therefore more competitive. Undifferentiated products have lower market growth rates. Competitive Rivalry is high. Describe how your business could reduce some or all of the five forces.
How can South West Airlines Strategic Position reduce these forces? Force Reduced Reduces Bargaining Power of Supplies What has Southwest Airlines done to reduce the force? Use only Boeing ass’s therefore have the ability to influence the suppliers by buying parts in bulk Reduces Threat Of Entrants Economies of Scale: South West Airlines has established excellent economies of scale by using only Boeing ass’s and have created efficiency through the activity map. Experience: Long term approach to strategic position to make tenet equines established over a long time.
Differentiated services which fulfill specific customer needs are likely to reduce customers choice of other products. Reduce Bargaining Powers of Buyers Reduce Competitive Rivalry Differentiated Services and fulfilling customer needs better than others reduces competition. Generated market growth by having a low cost product which fulfils customer needs. Reduce Threat of Product Substitution Product for Product Substitution. Lower cost tickets means that customers are less likely to substitute airline travel with train travel. South west Airlines