Michael Porter’s theory for assessing potential risks was developed back in 1979, but has retained its popularity to this day. It consists in assessing possible adverse events that may somehow affect the business in the future. The theory is used to build long-term goals and is used when it is necessary to minimize risks. This paper examines this tool and in particular each of these five determinants, called forces.
Opportunities for business promotion largely depend on how competitive the company is and how vulnerable it is to external factors. The flower shop selected as the target company has a relatively long history, and its owner is an experienced woman (“Our story,” n.d.). However, to conduct business successfully, it is crucial to take into account a number of aspects, among which targeted work on the application of Internet opportunities is a significant prospect. Porter’s Five Forces analysis is a methodology that allows for identifying the risks and vulnerabilities of a business from the standpoint of the influence of market participants. As one of the key assumptions, the idea is that digital optimization is a potentially valuable strategy to help strengthen the market position of the company in question and overcome competitive barriers caused by rivals’ activities. Working towards technological innovation, such as updating the firm’s website and establishing robust online communications, can be valuable initiatives to strengthen Becky’s Cottage Floral’s business and counter external risk factors.
Five Forces Analysis
The methodology under consideration is a management tool for assessing a specific industry to identify business development prospects and evaluate constraints to take into account. The five forces concern the threats of substitute products and new entrants, the powers of buyers and suppliers, as well as the level of rivalry. Evaluating these characteristics in relation to Becky’s Cottage Floral can help highlight the key factors that deserve particular attention and need to be timely addressed to overcome the tough conditions of the target industry.
Threats of New Entrants
The key threat to Becky’s Cottage Floral related to new entrants is the business’s inability to compete with firms with a more innovative approach to sales and marketing. According to Umantsiv et al. (2019), the flower market can be characterized from the perspective of high demand elasticity. This is explained by the fact that the goods in this category are non-essential products, and the prevailing wedding and funeral decorating services performed by Becky’s Cottage Floral prove it. If new participants appear in the target market and offer more flexible terms of interaction with consumers, for instance, through online wholesale regimes, the risks for the business in question increase. The firm will have to cut prices to not only attract new customers but also retain loyal ones and develop new value propositions, which can be costly without proper preparation. Therefore, the optimization of the digital base through the active use of Internet opportunities is a promising area of work for the company.
Threat of Substitute Products
The threat of substitute products is associated with the previous risk of new market participants’ entry. Becky’s Cottage Floral is a stable business and has a good reputation. In addition, flowers are a commodity that is in demand on a regular basis, although sales cycles are not easy to predict due to the lack of clear seasonal parameters. Nevertheless, in this industry, substitute products can be associated with virtual marketplaces with convenient ordering algorithms. Komodromos et al. (2018) note the success of e-shopping as a practice that is of interest to a large number of buyers, especially a young audience. Given the fact that a significant portion of Becky’s Cottage Floral’s business is wedding decoration, it is critical to consider such a factor as a potential threat. This suggests that the firm in question should be more service-oriented rather than product-oriented and focus on increasing the switching cost for clients. These initiatives can be realized through the successful use of digital opportunities.
Bargaining Power of Suppliers
The power of suppliers is high for Becky’s Cottage Floral due to the nature of the business. The company works with a product that requires special storage and transportation conditions. In addition, one of the crucial conditions is the proximity of the points of purchase; therefore, logistical aspects form an important part of the business. Becky’s Cottage Floral is not a retail chain and sells exclusively in one pavilion. All this suggests that the company is not as popular among partners as some other stores and can hardly count on discounts from suppliers who are ready to interact with this particular seller. As a result, the pricing policy of the business largely depends on the purchasing conditions dictated by suppliers. According to Gezer and Kingir (2020), digital optimization is a valuable perspective for flower companies to optimize supplier interactions. Contact management improvements, financial records, and other aspects of partnerships can be strengthened, which is evidence in favor of the implementation of adequate innovative solutions.
Bargaining Power of Buyers
The power of buyers for Becky’s Cottage Floral is even higher than that of suppliers. Due to the variety of floral design options that exist in today’s market, such a small business is in dire need of constantly maintaining demand. Although the firm has loyal customers, the bulk of its profits come from large orders, such as weddings and funerals. In addition, without a stable online presence, Becky’s Cottage Floral is particularly vulnerable to client leaks. Chakreshwari (2019) states that by promoting sales in a traditional way, flower businesses are unlikely to achieve significant results. Therefore, innovative marketing methods are critical success factors. By focusing on flexible customer demand, Becky’s Cottage Floral can improve the interaction mechanism with the target audience and focus on online activities, offering discounts, bonus programs, and other alternatives to expand the customer base. These solutions are adequate in light of the volatility of demand and high buyer power.
Competitive Rivalry
Becky’s Cottage Floral is a relatively small business with one store. Compared to some other companies, sales shares are not big, and given the high competition in the industry, one of the risks is lower product prices. Retail chains interacting with a large number of suppliers control the price range and shape market trends, which creates a threat to smaller companies. Product differentiation, in this case, is an appropriate strategy to apply to retain customers and attract new buyers. According to Sulaiman et al. (2022), such a solution may help overcome competitive barriers and reduces the threats associated with the monopolization of the market by other participants. In addition, by strengthening the digital base, the business under consideration can expand its reach and interact with other companies, forging productive partnerships and deals to increase profit growth. In the case of inaction, the risks of the emergence of larger participants increase as the target market develops actively. The firm may lose its current advantage as a reliable company if innovative changes do not occur. Therefore, Becky’s Cottage Floral should pay attention to Internet opportunities as the mechanisms to streamline its workflow.
References
Chakreshwari, A. B. (2019). A market research on flower market in Puttur town of Dakshina Kannada District: Problems and prospects. International Journal of Research in Social Sciences, 9(3), 306-316.
Gezer, Y., & Kingir, S. (2020). Entrepreneurss decision processes on a new business investment: Feasibility study in London flower industry. Academic Review of Humanities and Social Sciences, 3(1), 139-160.
Komodromos, M., Papaioannou, T., & Adamu, M. A. (2018). Influence of online retailers’ social media marketing strategies on students’ perceptions towards e-shopping: A qualitative study. International Journal of Technology Enhanced Learning, 10(3), 218-234. Web.
Our story. (n.d.). Becky’s Cottage Floral. Web.
Sulaiman, Z. P., Anindita, R., & Muhaimin, A. W. (2022). Analysis of the structure, conduct and performance of the chrysanthemum flower market in Pasuruan Regency (study case in Tutur Village). HABITAT, 33(01), 1-12. Web.
Umantsiv, I., Sonko, Y., & Yatsyshyna, K. (2019). Competition at product markets of various types of commodities. Problems and Perspectives in Management, 17(2), 334-347. Web.