Rebuilding a Company

Porters Five Forces Model

As strategy consultants of McCormick & Associates, we use Porters Five Forces Model as a framework when making a qualitative evaluation of a firm’s strategic position (Appendix 1.2). These five forces determine the competitive intensity and therefore attractiveness of a market. These forces affect the ability of a company to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place.

Bargaining Power of Customers

Is high when buyers have many choices of whom to buy from and low when the choices are few. By offering your customers high quality fresh food, they will come to your cafй instead of your competitors. One way to reduce buyer power is to implement Loyalty Programs. A Loyalty Program that can be implemented in the Broadway Cafй is to have a customer purchase card. Every time a customer makes a purchase, this card gets “stamped” and after 7 purchases of a sandwich, their 8th one is free or 50% off.

Bargaining Power of Suppliers

The Broadway Cafй will want its supplier power to be low. The Cafй should seek out and search suppliers that will offer the lowest price. Since there are many suppliers of basic commodities (e.g., flour, sugar, bread) they all will be vying for your business. A private exchange or a reverse auction could be done in order for you to get the best possible price from your suppliers.

Threat of Substitute Products

Ideally, you would like to be in a market where there are few substitutes for the product or service you offer. It is true that a potential customer can ultimately make their own sandwich or cup of coffee. Yet do these customers have the time and resources to do it? Most likely this will not be the case. The Cafй can reduce the threat of substitute products by lowering its switching costs. Customers may be more reluctant to switch to a different product if the competitors sandwiches are not as fresh or homemade. Customers place a higher value on fresh, homemade breads and ingredients.

Threat of New Entrants

In your industry, an entry barrier is to provide customers with high quality, fresh, homemade products. With the surge of the health craze, more people are likely to go to a Cafй type establishment, than go to a fast food restaurant. Health-conscious customers have come to know and expect this from any cafй/restaurant trying to enter this market.

Rivalry among Existing Competitors

In most industries, competition is fierce. It’s always important to look at your competitors. We have established that your biggest competitors in this industry are: Starbucks, Atlanta Bread Co., Panera Bread, Subway and Dunkin Donuts. All of these competitors offer the same type of products that your Cafй does. Since these are well-known establishments, it is always best to analyze their trends and movements in the market. Companies that do well are always the one to model your business after.

Competitive Advantage

A competitive advantage is a position that a firm occupies in its competitive environment. A company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability of all other companies competing for the same set of customers. It also means when customers place a greater value on your product or service than your competitors. A company must not only have a competitive advantage (CA), but a sustainable competitive advantage. Firm posses a sustainable competitive advantage (SCA) when it has value-creating processes (products & services) that cannot be duplicated or imitated by other firms which lead to above normal profits. A SCA is more than a CA, because it provides a long-term advantage that is not easily replicated. This is also known as a core competency. To be sustainable the advantage must be 1) Distinctive and 2) Proprietary. Competitive advantages vary from situation to situation. They can be divided into 4 main areas:

1. Cost: Low Cost Operations

2. Quality: High Quality, Consistent Quality

3. Time: Delivery Speed, On-Time delivery, Development Speed

4. Flexibility: Customization, Volume Flexibility, Variety

Michael