Question

the key factors to be successful. Those key factors also help deter- This chapter's exercise is based on a model that allows you to assess the structure of any industry. The methodology mine whether or not a certain industry could be successful. was developed by Michael Porter and is called the Five To fully understand this process, take a look at the home Forces of Competitive Position. The Five Forces include the improvement industry. Two big competitors, Home Depot and Lowe's, dominate this industry. Each has a large piece of the market. Other smaller stores have joined forces in horizontal channels like True Value and Ace Hardware. The do-it-yourself market has driven demand in recent years, but will growth be maintained? Take a look at Home Depot Inc. Do some research. Investigate its retail organization (Home Depot), its wholesale distribution organization (HD Supply), and its cat- following: Bargaining power of suppliers Bargaining power of buyers Threat of substitutes Rivalry among competitors The Five Forces provide a way to understand the business alog sales channel (Home Decorator). Using Porter's Five . Threat of new entrants models of industries. How competitive is the industry? What does Forces of Competitive Position summarize the business struc- it take to succeed? How easy is it to get into the business? How ture of the home improvement industry, in general, and Home does the industry make money? Taken together, these answers give you a way to understand the likelihood of success and the potential for profit in this industry. It is important to understand Depot Inc., specifically. Explain how you think Inc. uses these three major business units (separately and in combination) to improve its competitive advantage. Home Depot

Answer 1

Competitive Rivalry:

1. High number of firms and biggest competitors like Lowe
2. Moderate exit barriers
3. Low switching costs amongst customers

Bargaining power of Buyers

1. Low switching cost to competitive firms at lower prices and flexibility
2. High availability of substitution
3. Buyers demand market

Bargaining power of Suppliers

1. Bargaining power is low due to large population of buyers and market being driven solely by buyers
2. Exclusivity with retailers is low so less comparative advantage
3. Suppliers to Home Depot are limited and can demand higher prices if shortages occur

Threats of Substituting

1. High availability of competitive products and hence higher threat
2. Low switching cost for buyers makes it more competitive
3. Direct unorganised supply from OEM also make it threatening

Threat of New Entrants

1. Entry barriers are high because of government regulations and high marketing costs
2. Ease and cost of doing business is high and hence threat of new entrants is lower.

The entire home improvement industry is Oligopolistic and is concentrated by 4 to 6 big size players with widest products range and sufficient size. The industry has high entry and exit barriers, high development and marketing costs. Buyers bargaining power is high and suppliers bargaining power is lesser. Competitive market with botton rates is the new phenomenon .

The firm banks upon 3 business segements :

1. Do It For Me Customers who are typical home owners and hire third parties for installation

2. Do it Yourself Customers who are home owners who purchase and install by themselves

3. Professional Customers who are general contractors and repair professionals .

These help them bifurcate sales segments and pricing as per customer requirements and achieve economies of scale and higher markup margins.