BUS402 Week 3 Discussion Forum 2

Porter postulates that its underlying economic structure determines the power of competition in an industry. As outlined in the video, an industry structure is shaped by five primary competitive forces. The alcoholic beverage industry generates low-profit margins due to various reasons.

Threats to Entry

The new entrants to an industry usually cause a threat to an established industry. There are barriers to entry into the market in the liquor industry compared to the beer industry. Government policies restrict competition in the industry. Also, new entrants require a large amount of capital to become a key player in the market (Abraham, 2012). The existing firms in the market possess trademarks and have an established brand reputation. Besides, in the alcoholic beverage industry, customers' loyalty switch since many brands are offering the same product at a relatively low price.

Bargaining power of buyers

Usually, consumers have bargaining power, which they use to force down prices and bargain for good quality of services. There exist many potential buyers globally, as they have a wide range of choices to choose from. The change cost is minimum in the industry. In return, the industry makes less profit.

Threats of substitute products or services in the industry

There are many different types of alcoholic beverages that consumers can choose from. Therefore, substitute products usually have a substantial effect on this industry since they pose competition. The substitutes limit the potential returns of this industry by placing a ceiling on the prices firms in the industry can profitably charge.

Rivalry among the existing firms

In the alcoholic beverage industry, there exit many competitions due to product differences, growth in the industry, brand identity, and exit barriers. The liquor market is consistently growing, which attracts many competitors.

Bargaining power of suppliers

Usually, in the alcoholic beverage industry, the ingredients are produced by many different suppliers. Besides, the bottling, labeling, and distribution services are provided by outsourcing. Outsourcing increases expenses and reduces revenues. As a result, the price of the services or products in this industry is less, which leads to a low-profit margin.

References

Abraham, S. C. (2012). Strategic Management for Organizations. Retrieved from https://content.ashford.edu/

Harvard Business Review. (2008, June 30). The Five Competitive Forces That Shape Strategy. (Video file). Retrieved from https://www.youtube.com/watch?v=mYF2_FBCvXw&feature=player_detailpage