Five Forces Analysis

Five Forces Analysis

The industry being analyzed is the tobacco industry. The tobacco industry manufacturer cigarettes, snuff, chewing tobacco, etc.

Customers

a. The customers are the wholesalers and retailers of tobacco products. There are a

large amount of customers in this industry, which makes the customers not very

powerful.

b. I believe the customers do make high-volume purchases, which would make them

powerful.

c. The purchases customers make from the industry are the same relative to the

amount expended for items from other industries. This causes the customer to

have moderate power.

d. The products customers are buying are differentiated because the customers are

selling to people who want a certain brand of cigarette, snuff, and tobacco,

etc., making the customers buy from a specific company that sells those brands.

This weakens the power of the customer.

e. I believe there are a wide variety of customers and therefore the profitability

of each customer varies. The customers who earn low profits are under pressure

to keep the costs of their purchases down. This type of customer would be

powerful. On the other hand, the customers who earn high profits are not as

concerned with the costs of their purchases, making them not as powerful.

Overall, when it comes to customers making profits from this industry, they

would have a moderate amount of power.

f. The customers can easily obtain accurate information on the selling industry.

This gives the customer power when it is time to negotiate the cost of the

products.

g. The customers can not easily vertically integrate backward and become their own

supplier, It would be too difficult for a wholesaler or retailer to start making

tobacco products. This makes the customers not very powerful.

h. Customers can easily switch from one seller to another making themselves

powerful.

i. Overall, I think the customers have a moderate amount of power.

Suppliers

a. The suppliers are the growers of the tobacco. There are few suppliers making

them very powerful.

b. Few substitutes exist for the product that is supplied, making the suppliers

very powerful.

c. Sup...

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a. There are few substitutes for the tobacco industry. However, the substitutes

that they do have are easily available. The two substitutes available are gum

and the nicotine patch. Fortunately for the industry, customers do not promote

these items as alternatives to tobacco and therefore do not pose a threat to

this industry.

Summary

a. The analysis above indicates the following: the customer and existing

competition forces are moderate, the supplier force is strong and the threat of

potential entrants and substitutes are weak.

b. This is a moderately difficult industry in which to compete for existing

competitors because of the pressure to keep costs low and keep up with

technology.

c. This would not be a good industry for a new firm to enter because of the

extremely difficult barriers to entry.

d. I do expect existing firm competitors to have high profits and sales growth,

because tobacco sells itself. As long as the companies in this industry keep up

with technology and marketing they will see an increase in their sales,

especially abroad.