Threat of new entrants in retail industry

Barriers to entry are advantages that existing, established companies have over new entrants. If the barriers are high, the threat of new entrants is reduced and conversely if the barriers are low, the risk of new companies venturing into a given market is high. The threat of new entrants is particularly intense if they are diversifying from another market as they can leverage existing expertise, cash flow, and brand identity as it puts a strain on existing companies'Д«arriers to entry restrict the threat of new entrants.

This in turn puts pressure on prices, costs, and the rate of investment needed to sustain a business within the industry. New entrants put pressure on current organizations within an industry through their desire to gain market share. Other Porter strategy tools include the value chain and generic competitive strategies. Porter's five-forces framework is based on the structureвЂ“conductвЂ“performance paradigm in industrial organizational economics. Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor and ad hoc. Porter's five forces include three forces from 'horizontal' competition вЂ“ the threat of substitute products or services, the threat of established rivals, and the threat of new entrants вЂ“ and two others from 'vertical' competition вЂ“ the bargaining power of suppliers and the bargaining power of customers.

A few carriers вЂ“ Richard Branson's Virgin Atlantic is one вЂ“ have tried, with limited success, to use sources of differentiation in order to increase profitability. Airlines tend to compete on cost, and that drives down the profitability of individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs afford enormous latitude in the price of airline travel. A clear example of this is the airline industry. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. Porter refers to these forces as the microenvironment, to contrast it with the more general term macroenvironment. This framework was first published in Harvard Business Review in 1979. The five-forces perspective is associated with its originator, Michael E. The most unattractive industry would be one approaching 'pure competition', in which available profits for all firms are driven to normal profit levels. An 'unattractive' industry is one in which the effect of these five forces reduces overall profitability. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability. Porter's Five Forces Framework is a method of analysing the operating environment of a competition of a business. A graphical representation of Porter's five forces

Threat of new entrants in retail industry