Table of Contents
2.1. Overview and critique of Porter’s Five Forces Model of competition.
2.2 Company analysis.
Overview of Tesco.
2.3 Does this theory and practice work?.
Kenton (2018) said that strategic management is the management of the resources of a business organization that helps to achieve the goals and objectives of that business organization. There are three key components of strategic management such as strategic analysis, strategic implementation, and strategic choice. A number of models or theories are used to implement different strategies in an organization (Beirnat, 2015). Porter’s Five Forces model is the most used model to analyze the business’s competitive situation.
Firstly, this assignment critically evaluates Porter’s Five Forces model’s effectiveness to analyze business including Tesco’s competitive position. In addition, this assignment provides an overview of Porter’s Five Forces model and describes its benefits and drawbacks. After that, the implementation of Porter’s Five Forces model is described. Then, this assignment critically analyzes the effectiveness of Porter’s model for business organizations such as Tesco. Last, of all, this assignment provides findings as well as gives a proper recommendation for the business organization including Tesco.
2.1. Overview and critique of Porter’s Five Forces Model of competition
Market structures are classified into five different groups by focusing on the market industry. It is very significant for the owners of the business to understand which type of market structure is suitable for them for their business (Richards, 2018). The key five market structures are perfect competition, monopoly, oligopoly, monopolistic competition, and monopsony. In the perfect competition structure, there are a huge number of buyers and sellers. Thus, with huge marketers, it is not possible for an individual marketer to change its dominant price in the market.
In terms of monopoly market structure, there is just a single producer of a product, and there is no reasonable substitute (Tutors Net, 2018). In the case of an oligopoly market structure, this market structure is quite the same as the monopoly market structure but the key difference is there are some producers for a particular product. On the other hand, the monopolistic competition structure means the combination of the elements of both monopoly and perfect competition structure (Economics Help, 2018). Finally, the monopsony structure means there is only one buyer for particular products.
According to Gome (2017), the five forces can work in a perfect competition structure because the marketers of this structure sell similar products, know the products’ nature and price, and there is freedom of entry and exit. However, the five forces cannot work in a monopoly structure because a single marketer sells unique products and there are no substitutes for any marketer, the marketer has control over product price and there is a block of entry and exit (Gome, 2017). In addition, five forces can work a little bit in an oligopoly structure because marketers of this structure face substitute products but a block entry and exit.
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According to Kotlter et al. (2014), Porter’s Five Forces model is one of the effective models to analyze the competitive situation of businesses like Tesco. The five forces included in this model are competitive rivalry, threats of substitutes, and threats of new entrants, customer bargaining powers, and suppliers’ bargaining powers. In addition, Porter’s five forces model is the key model for analyzing a business’s strategic issues (Andrio, 2016). In terms of competitive rivalry, organizations that have a huge number of competitors along with many substitute products have less power. If the competitive rivalry is of an organization is low, then the organization has a high power to gain high profit in its business.
According to Martin (2015), new entrants in the market can affect the power of a business organization. An organization along with a strong barrier faces few competitors in its business. In terms of the bargaining power of suppliers, this competitive force states how simple suppliers can increase products’ prices. The power of suppliers becomes high if the organizations depend too much on particular suppliers. In terms of the bargaining power of customers, this competitive force affects the organizations by understanding how many customers the organization has, how important the customers are, and how it would cost customers to switch from one brand to another brand. Less bargaining power of customers helps organizations to hold more power. In terms of the threat of substitutes, if an organization has many substitute companies, then it faces a high threat from substitutes and loses its power.