Consideration of ‘Power of the Buyer’ and ‘Threat of Substitutes’ aspects of Porters Five Forces
Strategic decision making is considered as one of the most important factors in the modern business context as the existence of businesses in present days depends on proper strategic decision making. In case of industries like FMCG goods, retail industry and food retail chains, strategic decision making could be found as the key factor behind the industries mentioned above. In this study, the researcher shall discus the strategic decision making aspects of the fast food industry. In the initial part of the study, the researcher shall make discussion on the power of buyer and its implication on the strategic decision making of the fast food industry. The analysis shall be made on the basis of the Porter’s Five Forces model. In this part of the study, the researcher shall also make discussion on the threat of substitutes in the fast food industry. In this context, the researcher is required to mention that the fast food industry in the UK belongs to perfectly competitive market as this industry has a large number of competitors and the numbers of the customers are also considered as infinite. As the fast food industry in the UK faces demand from all around the globe, the number of customers is to be taken as infinite (Mena et al. 2014).
From the above discussions, the researcher is required to mention that as the number of customers and competitors are large enough to affect the industry of fast food in the UK, strategic decisions for this industry is required to be made by considering the factors like power of buyers. On the other hand, the researcher is required to mention that the fast food industry in the country also faces competition in the market due to the reason of existence of substitutes. On the other hand, the researcher is required to mention that the power of the buyers in an industry is closely related with the threats of substitutes. As stated by Johnsen (2015), substitute goods in an industry are to be considered as the result of the effective bargaining power of the buyers. In this context, the researcher is required to mention that the frequent change in price level or increase in the price level could result in increase in threat of substitutes in an industry. The detailed discussion of impact of “power of buyers” in the fast food industry and the effect of “threat of substitutes” in the same industry of the UK would be as follow.
Power of Buyers in the fast food industry of the UK
The researcher is required to mention that the buyers in the fast food industry are infinite in numbers as the demand of the fast food products in the UK is created internationally. In this context, Aiginger and Vogel (2015) opined that fast food chains in the UK is based on the international market and the most of the food products manufactured in the country is either sourced from abroad of sold in the countries of European Union. If the researcher is to mention the impact of foreign firms in the British market, it is to mention that the firms from the US, France, and Italy also make business in the UK to meet the domestic demand. Moreover, the domestic firms in the fast food industry in the UK is also to be considered as well developed as the fast food companies in UK makes 9% of the GDP of the country (Gross Domestic Product GDP- Office for National Statistics. 2017). In this context, if the discussion is to be made on the power of buyers in the UK fast food industry, the researcher is to mention that as fast food industry occupies a large portion of the UK economy, the firms indulging in the fast food industry could get affected by the change in demand structure of the buyers.
Fast food companies like Five Guys, Nando’s, Burger Kitchen, Domino’s and KFC serves customers in the domestic market and in the international context. Therefore, the bargaining power of buyers could be considered as impactful for the manufactures of the fast foods in the country. As stated by Wu (2013), power of buyers could be identified as the reason of product differentiation in the market of food and retail businesses. In this context, the researcher is required to mention that the fast food industry could face high product differentiation and high price sensitivity along with segment wise differentiation (Bartusková and Kresta, 2015). Therefore, the researcher is required to mention that the bargaining power of the customers of the food chains in the UK results in volatility in the price level. In other words, it could be said that if the power of the buyers enhances in the fast food industry in the UK, customers could consider the price of the products as the base of the buying decisions. In this context, the researcher is also required to mention that the high product differentiation could also be an impactful effect of the increase in the power of the buyers. As stated by Murari and Tater (2014), management of the fast food companies are required to make proper planning in order to identify the demand of the customers to protect the company’s interest from product differentiation.
Threat of substitutes
In the fast food industry, the strategic managers of the fast food companies could face the problem of existence of threats in the market as the industry belongs to perfect competition. As opined by Blackman et al. (2013), fast food manufacturing firms offer products, which are similar to the competitive companies. In this context, the researcher is required to mention that the existence of the similar products in the market causes market risks to the large scaled firms in the UK. The researcher is to mention in this context that substitution effect in an industry depends upon the quality of the products and the price of the products offered by the competitive firms. In this context, the researcher is required to mention that the switching cost is also required to be considered as an important issue for making analysis of the effect of threat of substitutes in the fast food industry in the UK. As cited by Artiles et al. (2013), low switching cost refers to high probability of purchasing substitute goods. Therefore, the strategic managers of the fast food manufacturing companies are required to consider the switching costs of the fast food industry to make strategic decisions.
The strategic managers of the fast food companies in the UK are to stabilize the impact of substitutes by considering the effective communication process as effective communication would be helpful in making proper relation with the customers. In this same context, Liao et al. (2015) stated that proper communication with the customers could help the strategic managers to aware the customers about the products of the company. As the fast food products industry is an example of perfect competition market, the factor of availability of substitute products could not be ignored by the strategic managers (Fuseini et al. 2017). Therefore, the strategic managers focus on the quality of the products that the firms offer to the customers.
In developing the quality of the products, the strategic managers are to focus on the health related issues as well as the cost of production. As stated by Mkude and Wimmer (2015), KFC, Domino’s and Five Guys use different techniques in order to develop the quality of products, which includes use of fresh ingredients and chemicals. In this context, the researcher is required to mention that the total quality management and the total quality control are required to be considered as an important factor in response of getting rid of the problem of substitutes due to the quality of the products. On the other hand, the strategic managers are also taking care of the performance of the products in the fast food companies in the country. As cited by Lang and Heasman (2015), fast food manufacturers use core competences to create new market and to exist in the existing market. In this context, the researcher is required to mention that the companies in the fast food industry often have a certain item, which could be differentiated from the products of other countries. For example, the researcher could mention that KFC is the specialist of chicken items (Mridul, 2017). On the other hand, the researcher is also required to state that the Domino’s is leader in the market of Pizza. In this context, Fuseini et al. (2017) cited that creation of products, which could not be copied or imitated, creates core competences. This kind of products could be found as helpful in getting rid of the threat of substitutes in the market Blackman et al. (2013). Therefore, it is to mention that the strategic managers are to consider the development of differentiated products in order to minimize the threat of substitutes in the market.
- Mena, C., Christopher, M. and van Hoek, R., (2014). Leading Procurement Strategy: Driving Value Through the Supply Chain. Kogan Page Publishers.
- Johnsen, Å., (2015). Strategic management thinking and practice in the public sector: A strategic planning for all seasons?. Financial Accountability & Management, 31(3), pp.243-268.
- Aiginger, K. and Vogel, J., (2015). Competitiveness: from a misleading concept to a strategy supporting Beyond GDP goals. Competitiveness Review, 25(5), pp.497-523.
- Gross Domestic Product (GDP)- Office for National Statistics. (2017). [online] Ons.gov.uk. Available at: https://www.ons.gov.uk/economy/grossdomesticproductgdp [Accessed 23 Feb. 2017].
- Wu, M., (2013). Towards a stakeholder perspective on competitive advantage. International Journal of Business and Management, 8(4), p.20.