Barriers to Entry

MICHAEL E. PORTER’S FIVE COMPETITIVE FORCES

PROCTER & GAMBLE

Barriers to entry

The biggest barriers to entry are derived from research and development. A new entrant should enter the market with a product that is differentiated as the competition is somewhat intense. Also reputable companies with successful brand names have established relationships with retailers and therefore have advantages over newcomers when competing for shelf space. Almost all the markets that P&G participates in are mature markets making it less favorable for new entrants.

The amount of capital investment required to enter some particular segments in household consumer products, such as manufacturing deodorants, is so high that we suspect that the threat of new entrants is fairly low in the industry. Whereas there are some segments within the household consumer-products industry where this may not be the case, since a small manufacturer could develop a superior product, such as a detergent, and compete with Procter & Gamble. So the test is whether the small manufacturer can get its products on the shelves of the same retailers as its much larger rivals.

Due to the wide range of Procter and Gamble products, it is very hard for a new company to come and participate. Although there can be small companies with specialization in particular products who can offer competition to Procter and gamble in specific areas.

Bargaining Power of Suppliers

The supplier’s power is very important as it is very costly to switch from one supplier to another. The supply of Procter and Gamble is as big as its production. If they would like to change suppliers, the supply chain will probably change too and such changes require a lot of time and money.

Also, suppliers that do a large amount of business with such companies are somewhat beholden to their customers.

The supplier’s bargain power is coped with its mutually dependent relationship with the company. Procter and Gamble ask for some good materials in order to manufacture products of good quality and sell them at reasonable price. Similarly, suppliers in market are always on the look for reputed clients who can help them make good amount of revenue. The standard and consistent reputation that Procter and Gamble has maintained over the years offers the company an added advantage in this regard. Hence, the terms of the company with its suppliers is not affected by the prevailing crisis of credit and fluctuation in interest rates.

Bargaining Power of Buyers

15% of P&G’s sales are to Wal-Mart which is a very demanding buyer, making the power of buyers to be moderate. There are two levels