Bargaining Power of Customers (Porter’s 5 Forces)

Five Forces - CustomerAn evaluation of how it’s simple to drive costs down for the customers. The customer can influence the price and terms of purchase and may request better service and product quality. The customer power is magnified when the market has many sellers and fewer customers. The switching cost from one seller to another is another factor in the buyer’s bargaining power. The buyers switch to another seller if the products are similar and there is no significant cost to switch. The washing machine detergents are almost similar and do the same cleaning. Dental care products are almost the same with different flavors. Online search engines are another example of service similarities. Users may switch because of a delay of a fraction of a second during the search. The customer will buy another toothpaste because of the new flavor of the month. In undifferentiated market, the brand loyalty between the buyer and seller could be the only reason why a consumer sticks with one seller over the other.

The customer may switch to another product if the customer is well-deducted about the product and have price sensitivity. The availability of the product substitute makes the seller weaker relative to the customer bargaining power. Supermarket shelves in most countries are stacked with different bands of a similar product that the consumer can conveniently choose from according to the brand name, price tag, or attractive packaging.

Regional small farmers, selling most of their farm products to a large supermarket chain have little influence on the terms of the sale. The farmer may opt not to sell to the supermarket at the price they set, but then the farmer has to endure the additional transportation cost to sell his products to another market.

Threat of New Entrants (Porter’s 5 Forces)

Five Forces - Entrants

Lucrative markets attract new entrants unless the existing organisations have a strong barrier to entry. If it is easy to make and sell what the organisation is selling then every other organisation would love to jump in and produce the same product and market it to the consumer. The organisation should have barriers to its share of the market to stop the new entrants from taking a slice out of it.

One of the best barriers is the economy of scale. Economy of scale is achieved when more products or services are obtained with the same fixed cost. A good example would be the neighbourhood bakery. The fixed cost for the bakery is the skilled bakers, the oven, and the store rent. The bakery would be losing money if they produce and sell a few items every day, but the bakery will have excellent economy of scale if the bakers work all of the time and the oven is always full of white dough turning to golden cakes and bread. The fixed cost will be distributed over multiple products and the production cost of each unit will be low. New entrant has to achieve this production and selling scale to be profitable otherwise they will not be able to enter and compete with the existing organisation.

Another example of the economy of scale is the Microsoft Excel. Competitors of Excel have to be widely distributed and adopted to be able to compete. The cost of switching to Excel to another spreadsheet software has to be very low, or maybe free to attract new users. Google offered Google Spreadsheets free online and offline for all users and it is making a good gain in the spreadsheet market share. Brand name can be a useful entry barrier when new organisation try to muscle in its way into the market. In the case of spreadsheet market, both Microsoft and Google are excellent brands and will have a fair chance to compete.

Product differentiation and location are strong entry barriers. Using the bakery example above would be a good illustration for these entry barriers. The bakery should have a good location and access to the costumers to make it more attractive for the customers. New competing bakery will have difficulty attacking the costumers if store is located in the back of a shopping mall or in a remote area. The customer will not go to the new bakery unless it has products the other bakery does not offer. The new bakery can specialize in birthday, wedding, and special occasion cakes which will make the costumer reach for it for that special social event.

The pharmaceutical industry illustrates three major entry barriers. Initial capital investment, government policy, and technology propriety (patent). The pharmaceutical industry invents heavily in research and development to generate a promising medicine that they can patent and sell in the market for many years in the future. The pharmaceutical life cycle from an idea to introduction to the market is averaging around 8 years. The FDA takes at least one year to approve the drug and only three out of twenty drugs turn out profitable. The patent may prevent other pharmaceutical organizations from copying the formula, but the customer will find generic products, which have the same effect, in the market within one year after launching the drug in the market.

Read also The Suppliers Bargaining PowerBargaining Power of Customers

How To Write A Strategy

Strategy Strategy according to Business Dictionary is a plan crafted to reach a goal or solution to a problem. Strategic planning takes the form of defining the organisation overall direction and allocating its resources and capabilities to achieve its mid to long-term gaols. A simple example would be the act of traveling by car from city A to city B. The resources required would be a car, map, money, food and drinks. The strategic objective would be reaching city B safely at set time with the lowest cost and effort. The strategic planning take place before the trip start detailing the main route to take and an alternative route. The plan should include when and where to stop for fuel, food and rest. The organisation should do similar planning for its mid and long-term strategic objective. Continue reading …

Stratgy Model

Cross-cultural Models

Woodhull and Louis (2009) state that People are social creatures and their cross-cultural issues falls within four models. The first model is the communal sharing model, which divide the population into in-groups and out-groups (Woodhull & Louis, 2009). In-group members treat each other differently than the out-group and share resources, information, and communication freely between them only. Fraternal organization is a good example to the communal sharing model. The second model is the authority ranking model, which is similar to the military hierarchy that divides the culture into layers and ranks (Woodhull & Louis, 2009). The lower ranks respect and obey their superiors who will take the responsibility. The third model is the equality matching that treat the population equally despite of the differences between them (Woodhull & Louis, 2009). The population members track what the contributed to the population and subtract what they took out. A good example of the equality matching is carpool. The last cross-cultural model Woodhull and Louis (2009) discussed is the market pricing model. Entry to this population is open and the relationship is based on utility, price and value. An example of this model is a for-profit business.

References:

Woodhull, M. D., & Louis, D. J. (2009). Why did they do that??? A cross-cultural study of daily decision-making by mexican maquiladoras and U.S./Canadian managers. Business Journal of Hispanic Research, 3(1), 77-93.

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Live Without TV

Listen to this postMany people like TV and the entertainments it deliver to our homes, but recently, most of the entertainments are targeted to attract the audience attention than entertain them. The best entertainment for me is documentaries and scientific programs. By watching these program I would be educated if not entertained and I would not be stressed or sad like if I watched the drama or reality TV. The new shows are encouraging us to vote by sending an SMS message that cost the price of a good meal!?
Last week was a long holiday in Kuwait and most of the people either traveled out of Kuwait or stayed and enjoyed the nice weather in the outdoors. My relatives were in the chalet for most of the holiday. I noticed that most of the teenagers were spending their time in the outdoors. They enter the chalet only for the basic necessities. They had so much fun by socializing, walking and talking. They enjoyed relaxing peacefully and watch the sea and nobody was watching the TV? But before the long holidays they were addicted to the TV and were wasting most of their valuable time watching unimportant programs. I guess they are now back to watching the  TV although they discovered how unimportant it was!

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Sugar Coating


Listen to this postYesterday was my anniversary at work. I have been with the same employer for the past 30 years and I enjoyed most of the days I worked there. Now I am managing more that 700 employees and I have tried to be fair with them while meeting most of their needs, requests and demands. One of the best tactics the employees use for their complains is “Sugar Coating”. I am not saying that the complain is true or not, but the way it is presented to me is sometimes strange.

For example, an employee would take an appointment to see my Boss and then start his discussion by saying “This is not a complain, I just wanted to say…” and then he or she would exaggerate every negativity they experienced in the last 3 years! Another example is when the employee send an official complain to HR or my Boss, but then catch me walking by and start by saying “I wanted to talk with you about an issue I have … do you have a minute do discuss it?

We all make mistakes and we should take our responsibilities to admit the mistakes and correct them. But using different ways to discuss the complain is not the best start to resolve any issue. Through my years at work I followed a good philosophy that goes something like this “Do not explain…and Do not complain” and it made my life very simple and peaceful. I am sure that my boss does not want me to explain to him why I made the mistake (or delay in an assignment). And I am very sure that nobody would like to set and listen to my complains. When I make a mistake I would admit it and do my best to correct it. If I have a complain or an issue with somebody, I would meet him or her and discus the issue face-to-face with them. Other than this … life is very simple.

Geo-economics Theory

International and subcultures issues had remarkable effect on the international organizations. Comparison of the popular theories like institutional, agency and resource-based theories test the chinese culture and geographic differences (Tsui, 2006). The geo-economics theory integrates the effect of economics and management on the success of the organization which competes in the international market and its geographical differences.

Study by Schlevogt (2001) tackled the differences between 124 organizations in the North of China and South of China found that “government support, organizational structure and management expertise” were the most important reasons for the effectiveness in North of China (Schlevogt, 2001).

Geo-economics differences are obvious in the Gulf Cooperation Council (GCC) area where the countries speak the same language, have same religion and similar heritage, but business and economic differences are obvious to the local and the international business community.

References:

Schlevogt, K.-A. (2001). Institutional and organizational factors affecting effectiveness: Geo-economics comparison between. Asia Pacific Journal of Management, 18(4), 519.

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Waiting For That Promotion

Listen to this postA time will come during our long careers when we would wait for that important promotion. Naturally, most of the promotions involve a decision to select you between different candidates. Office politics and favoritism may have some affect on the selection but finally the selection is made and you will know about it in one of the following ways:

  1. You are called into one of your Bosses offices and told that they have thought about the selection and how difficult was the decision to select between you and the others, but at the end you were the best choice. You tell your self “finally they noticed me, I don’t now why it took them so long?” If you are promoted then you need to gain new knowledge and learn new skills to fulfill the job requirement. What you have learn so far was enough to get you the promotion, but your current capabilities are not enough to survive and thrive. First you to learn what it takes to do your new job, and then you have to improve your skills and knowledge to be ready for the next promotion.
  2. You are called into one of your Bosses office and told that they have thought about the selection and how difficult was the decision to select between you and the others, but at the end you were not the chosen one. You blame everybody and everything (except yourself) for not getting the promotion. You have to understand why you did not get that promotion. What were the reasons for not selecting you. What was the selection criteria and in which part you were not competitive. Start immediately working on your weaknesses and get ready for the next opportunity.
  3. You are not called, or you don’t know about the selection process and you would be the last one to know that somebody else was promoted and you have missed the chance. You feel that you were cheated or stupid. If you were not aware of the opportunity then you need to improve your networking skills. However, if the opportunity was keep secret on purpose then you should consider changing your employer. Go ahead and find another employer who appreciate your work and give you equal opportunities with other candidates.
By the way, if you are not ready for a promotion or there are no promotions for you in the near future then you have to think seriously about your career.

Are You New To The iPad

App Store
Image via Wikipedia

Listen to this postI have used the iPad for sometime now and was asked by a close friend to recommend some of the applications I used so far. I listed some of them below but the best guideline I would recommend for purchasing and using an application for your iPad would be the number of stars the users rated the application in the App Store. Aways chose applications that have the plus sign displayed next to the price tag. The plus sign means that the app will work on your iPad and iPhone. If you do not have iPhone until now, you will buy yours very soon after you use the iPad. I can not tell you which app is best for you but most of the apps are priced between $1 to $3 less than your Starbucks Latte, so do not feel bad when you buy the application and find it disappointing.  One last advice to the iPad users: do not use the Jail Break no mater how wonderful the idea seems.

You may be interested in reading “Should I buy an iPad” in this blog.
Application Free Type Remarks
Pages No Prof. Equivalent of Word in windows although I find this application much better for the regular user
Keynotes No Prof. Equivalent of PowerPoint in windows although I find this application much better and easier for the regular user
Numbers No Prof. Equivalent of Excel in windows although I find this application much simpler for the regular user
OmniGraffle No Equivalent of Visio in windows although I find this application much better for the regular user
Digits Nice calculator but there are many of them in the App store. You may choose another one according to your needs and taste
Twitter Yes A social networking application if you like to tweet.
OmniFocus No Prof The best task organization App. This app had more functions than the regular user need, but the options and functions let you organize and achieve your task in a professional way. App price is $39.99 but worth the money if you are serious about your tasks.
Todo No Pro Excellent task organization App. good functions and options and recommended for the regular users. I stopped using this app after i installed the OmniFocus.
Corkulous No Nice app to organize your thoughts and ideas. The app will help you visualize your thoughts in a fun and simple way. You can export the action list in this app as a task in the Todo app mentioned above
FlipTime XL No Nice time display and alarm. There are many you can choose but this is my personal favorite.
AccuWeather Yes Free app with excellent weather display.
GoodReader No To view and download PDF files.
iBooks Yes To buy and read digital books
Priority Matrix No Prof Excellent thought and priority sorting application that is easy to use and organize. The best SWAT analysis application I used so far.
Pocket Pond Yes To relax and unwind.
Flipboard Yes To organize and display multiple feeds in a magazine like display.
Angry Birds No Game Must have.The best so far
RealRacingHD No Game Steer the car by tilting the iPad
MultiPong Yes Game Nice game
Pinball HD No Game Good resemblance of the Pinball game we use to play 30 years ago
Fruit Ninja No Game Must have
UZU No To relax and unwind.
Super 7 HD Yes Game Educational and relaxing game

Skilled Workers Vs. Cheap Labor

Listen to this postInternational producers, like China, are exporting  their products to sell them at or lower than the production cost (Vandenbussche & Zanardi, 2008). Local companies can compete with the low-cost labor by making the costly labor more efficient to produce the same product in less time and with less waste (time and material). Klempa (2006) states that productivity can be drastically improved when the roadblocks are removed. Productivity improve by improving management planning, making productivity a strategic initiative, aiming high, measuring progress and making changes as needed (Klempa, 2006). The same worker might cost more but he or she would produce high output with less reworks. Local business would face stiff competition from the international producers if the same quality could be produced with cheaper labor.

References:

Klempa, M. (2006). Eliminating productivity roadblocks. Financial Executive, 22(8), 32-35.

Vandenbussche, H., & Zanardi, M. (2008). What explains the proliferation of antidumping laws? Economic Policy, 23(53), 93-138. doi: 10.1111/j.1468-0327.2007.00196.x

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