Introduction
Crown, Cork and Seal Company was one of the metal can industries that dominated the United States market in 1989. It had a market share of seven percent in the metal can industries with Avery as the Crown’s new CEO who was determined to change industry outlook.
The five-force analysis of industries determines the attractiveness of a market based on competitive intensity where attractiveness in the five-force analysis of industries refers to the industry’s profitability.
Threat of new competitors
Industries with high profitability tend to attract many new firms that aim at yielding high returns for their investments. The new firms that enter into the market reduce profitability for all firms in the industry, which leads to perfect competition.
The metal container industry in United States represented sixty one percent of packaged products in 1989. The presence of a large market share attracted many firms in the industry because of profitability, which was evident in the market.
The metal can industry was dominated by five major firms, which had a large market share whose balance was being served by more than a hundred firms. This led to high competition in pricing which resulted to decrease in operating margins for Crown Company and other firms in the industry.
Threat of substitute products
The threat is caused by existence of other products that are able to substitute the common products in the industry. The threat of substitute products means that customers may prefer alternative products instead of the common products. The metal container industry in 1989 had the threat of substitute products, which split its market share.
Glass and plastic containers were the substitute products and they had a market share of thirty nine percent. Absence of substitute products would mean that metal can industry would have a hundred percent of market share.
Bargaining power of buyers
The bargaining power of buyers or customers tends to pressure firms in price changes, which may be due to buyer volume or availability of substitute products in the industry. The force of the bargaining power of customers affected firms in the metal can industry.
This is because customers as well as the buyers through cut-in-order sizes, which led to low profitability, punished firms with uncompetitive prices (Bradley 2005, p.53). The bargaining power of customers in the metal can industry led to competitive pricing and firms encouraged large orders by offering large discounts to customers.
The firms in the industry gave in to customers bargaining power by giving large discounts with the aim of protecting their market share.
Competitive rivalry
Every industry has competitiveness, which is determined by firms with the same products within the industry. Due to competition in the industry, Crown, Cork and Seal Company decided to gain competitive advantage by having new technologies and innovations to develop their product line.
This helped the firm to gain a powerful competitive advantage over the other firms by meeting the customer’s needs in a more convenient way than other firms in the industry meet.
Bargaining power of suppliers
Industries rely on suppliers who supply them with labor, raw materials, services and other components. Suppliers may charge high prices to the firms if there are few substitutes.
The main suppliers of the Crown Company were aluminum and steel producers. Aluminum had the largest market share but steel had an advantage over aluminum because of its price.
Conclusion
The metal container industry in 1989 was characterized by the five-force analysis of industries. The major threats that affected Crown, Cork and Seal Company were availability of substitute packaging materials like glass and plastic substitutes. There was also a threat in the industry, which was caused by in house manufacture of metal cans by brewers and food producers.
Reference
Bradley, S., 2005. Crown, Cork & Seal in 1989. Harvard: Harvard UP.