Chapter 2, Problem 1OC

Program Plan Intro

Porter’s Five Forces Model:

To assess the potential for profitability in an industry, the competitive forces within the environment is analyzed by the Porter’s Five Forces.

• Buyer Power – The ability of the buyers to affect the price that they need to pay for an item.
• Supplier Power – The ability to influence the prices that are charged for the suppliers.
• Threat of substitute products or services – It will be high when there are many alternatives to a product or service and it will remain low when there are very few alternatives from which to choose.
• Threat of new entrants – It will be high when it becomes easy for new competitors to enter a market and it will remain low when there are some entry barriers to enter a market.
• Rivalry among existing competitors – It will be high when the competition is fierce in the market and it will remain low when competition becomes more complacent.

Explanation of Solution

Analyzing Buyer power and Supplier power for Costco:

• Costco is having many choices for competing stores such as Sam’s club, Wal-Mart, or generic brands at grocery stores so that the buyer power for Costco is also high.
• Whereas the supplier power for Costco is low since the company competes on prices if the supplier chooses to increase prices then Costco will just drop the product and they have reduced supplier power since their warehouse is changing products without any guaranty.