Porter's Five Forces Model for Cosmetics Industry Analysis Example (2024)

FAQs

Porter's Five Forces Model for Cosmetics Industry Analysis Example? ›

Five forces by porter are as follows: Competitors in the industry; Threat of new entrants; Bargaining power of suppliers; Bargaining power of buyers; Threat of substitutes. Competitors operating in the same industry may drive profit margins and revenue down for any given company.

Five forces by porter are as follows: Competitors in the industry; Threat of new entrants; Bargaining power of suppliers; Bargaining power of buyers; Threat of substitutes. Competitors operating in the same industry may drive profit margins and revenue down for any given company.

Porter found that the success or failure of businesses were influenced by several elements interacting with each other. The five forces structural elements included (a) threat of new entrants, (b) threat of substitution, (c) buyer power, (d) supplier power, and (e) competitive rivalry (Porter, 1980).

The industry has high competition, high entry barriers, low supplier power, high customer power and a large number of substitutes. In order for a firm to enter and be successful in the cosmetic industry, it has to apply various strategies.

Examples: High barrier to entry and high exit barrier (for example, telecommunications, energy) High barrier to entry and low exit barrier (for example, consulting, education) Low barrier to entry and high exit barrier (for example, hotels, ironworks)

As its name suggested, there are five forces in this framework which are the threat of new entrants, the threat of substitutes, bargaining power of customers, bargaining power of suppliers, and competitive rivalry (Porter, 1979). The competition in the luxury goods segment is very intense.

The Beauty industry covers a wide variety of personal products (skin care; color cosmetics; hair care; fragrances), beauty appliances (hair dryers; brushes; combs), services (salons; day spas) and related functions (packaging; supply chain).

What are the barriers to entry in the cosmetic industry? ›

If there are no considerable barriers to enter, there may be many new entrants (Berger, 11). For the cosmetic industry, the most important barriers are the exclusive rights and economies of scale. However, this industry has large capital requirements since the differentiation of products that are sold in it.

The beauty industry is one of the most competitive industries in the world. Every year, new brands and products enter the market, and it can be tough to stand out from the crowd. However, competition is not necessarily a bad thing.

Sixth force of Porter's- Example

A very simple example of complementary goods, the sixth force of Porter's framework, is the hotdog and the hotdog bun. A normal consumer prefers to eat a hotdog in a hotdog bun.

Industry competition includes businesses that sell a similar product or service. So if you're starting an online clothing store, your industry is digital retail and your competitors are other online apparel companies.

Let's take a threat of substitutes example: You may be someone who enjoys coffee. When your doctor tells you to lay off the caffeine, you may consider switching to flowering tea or something similar. This creates the threat of substitutes products or services you can encounter.

A few examples of Buyer Power

A good example of when buyers have influence is insurance – for a car, house, travel etc. A buyer can bargain with an insurer wanting to increase their premiums if there are plenty of other companies offering the same service cheaper.

Threat of New Entrants Explanation

An example of the threat of new entrants porter devised exists in the graphic design industry: there are very low barriers to entry. As new competitors flood the marketplace, have a plan to react before it impacts your business.

Which of the following offers an example where Porter's Five Forces are mostly strong and competition is high? A dog-walking business.

A good example of this is when groups like tour operators bulk purchase or book hotel rooms. As customers gain greater bargaining power, hotels are likely to lower their prices. If the bargaining power is high, suppliers will have great difficulty hiking prices and can even incur losses.

Usually, the number of suppliers of a particular resource greatly determine supplier power. For example, if a firm needs steel to produce their product, and there is only one seller of steel in the market, then the steel company has a strong supplier power.

What are driving forces in clothing industry? ›

What are the main drivers of the industry? Personalization, price reduction, sustainability, reorganization of the store network and full commitment to Rfid are some of the drivers of the fashion business, which is in the middle of an uncertainty scenario marked by political and economic uncertainty.

The five basic forces that are used in the analysis are the intensity of rivalry within the industry, the threat of substitutes, the threat of new entrants, the bargaining power of buyers, and the bargaining power of suppliers.

The bargaining power of suppliers in the fashion retail industry is moderate. Fashion retailers typically have a large number of suppliers from which to choose, which allows them to negotiate better prices.

According to Porter, the likelihood of firms making profits in a given industry depends on five factors: (1) barriers to entry and new entry threats, (2) buyer power, (3) supplier power, (4) threat from substitutes, and (5) rivalry.

Bargaining Power of Customers:

The products in this industry are pretty fixed; thereby, the customers' negotiation power is very low. Seasonal Gucci products that are exclusive and short-lived have inventory still left in the factory; those items are slashed and destroyed.

According to the North American Industry Classification System – better known as the NAICS, beauty salons fall into category 8121 – Personal Care Services.

Unmatched Leadership in the Retail Industry

Our leadership team's unrivaled experience has positioned us for continued success in the beauty products market.

Chemical ridden products, vague ingredient labels, and hidden chemicals are three of the major problems with the beauty industry. All these problems stem from one major source: lack of regulation. Lack of regulation enables companies to put unsafe chemicals in products and vaguely label chemicals as “fragrances”.

What is an example of barriers to entry industry? ›

Common barriers to entry include special tax benefits to existing firms, patent protections, strong brand identity, customer loyalty, and high customer switching costs. Other barriers include the need for new companies to obtain licenses or regulatory clearance before operation.

Barriers to entry can include government regulations, the need for licenses, and having to compete with a large corporation as a small business startup.

Traditionally, the beauty industry was primarily marketed towards women, but in recent years, there has been a shift towards inclusivity and diversity, with many brands now targeting men, non-binary individuals, and individuals of all ages and ethnicities.

Examples of Target Markets

Hence, from a generic point of view, a typical cosmetics business dealing in make-up items and other skincare products will primarily have women, aged 18 and above as its target market. Over time, men have shown keener interest in sports and sports betting than women.

Meaning of the Six Forces Model

This business model covers the subtleties of the clients, the capacity of suppliers, the risk factor, the different existing competitors, the threat of a new entrant in the market, and complementary product forces.

Some famous examples of direct competitors include Apple versus Android, Pepsi versus Coca-Cola, and Netflix versus Hulu. But direct competition isn't exclusive to well-known national or international brands.

1. Farmers' markets: The average farmers' market is perhaps the closest real-life example to perfect competition. Small producers sell nearly identical products for very similar prices.

Sixth force of Porter's- Example

A very simple example of complementary goods, the sixth force of Porter's framework, is the hotdog and the hotdog bun. A normal consumer prefers to eat a hotdog in a hotdog bun.

What are the 5 forces of Porter's power of customers? ›

These forces include competitive rivalry, barriers to entry, threat of substitutes, supplier power, and buyer power. The chart below illustrates these five forces as well as a simplified view of their interactions.

The Five Forces are the Threat of new market players, the threat of substitute products, power of customers, power of suppliers, industry rivalry which determines the competitive intensity and attractiveness of a market.

Step 3: Power of Complementors

Complementors are products or services that offer more value together than apart. An example is an iPhone case company, the success of this product is tied heavily to the success of the iPhone itself. Consider the following: What products or services complement your current offering?

Example of competitive rivalry

Both companies are similar sizes and offer a similar range of products. Since there's little differentiation between their products, both bookstores are suffering from a decrease in consumer purchases and high competitive rivalry.

A Five Forces analysis can help companies assess industry attractiveness, how trends will affect industry competition, which industries a company should compete in—and how companies can position themselves for success.

Porter's five forces is a model that can be used to analyze the competitive landscape of an industry and help determine whether or not new entries into the market are viable. The model considers several factors: supplier power, buyer power, competitive rivalry, substitute products, and potential for new entrants.

The model focuses on a set of five factors that help understand the competitive strength and the market position of an organization. The 5 forces are; threat of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, and intensity of competitive rivalry.

The main objective of the Five Forces model is to analyze the performance of an industry and determine its competitiveness. Such an analysis enables companies to identify their position in the industry and develop strategies that would improve their competitive advantage and profitability.

If an industry offers fast or large potential returns, there will always be potential entrants ready to provide you with competition. Some industries are easier to enter than others. For example, there are usually fewer barriers for a company entering service industries than those operating in manufacturing.

What is an example of threat of substitute products? ›

Let's take a threat of substitutes example: You may be someone who enjoys coffee. When your doctor tells you to lay off the caffeine, you may consider switching to flowering tea or something similar. This creates the threat of substitutes products or services you can encounter.

New entrants are businesses that want to enter your market. Your power is affected by the ability of others to enter the market. New competitors can easily enter your market when there are low entry costs, few economies of scale, no knowledge-intensity and little protection of key technologies.