COMPETITIVE ENVIRONMENT: PORTERS FIVE FORCES

2012

An evaluation of the relationship of a brand (Canon) to its competitive environment: INTRODUCTION Porters 5 forces is a model of pure competition which was developed to analyse the competitive environment of an industry to a particular firm. Michael Porter provided this framework which features an industry as being influenced by 5 forces: Industry competitors: intensity of rivalry Threats of new entrants Power of buyer Power of supplier Threat of substitutes

BRAND: CANON; INDUSTRY: DIGITAL CAMERA MARKET 1. Industry competition: Intensity of rivalry High concentration ratio: with the largest profits owned by the Big 3 Canon, Nikon and Sony Other competitors Pentax, Olympus, Kodak, Samsung, Panasonic, Casio The digital camera market is a mature market and highly saturated with slow growth. High exit barriers The industry is highly capital intensive, with automated machinery which are specially designed to build camera. Rivalry is extremely intense and aggressive; the product development by Canon 450D is matched by Nikon D90. Product differentiation are based on the strength of the brand due to high competition competitors counter-react to the activity of another firm; for example Sonys development of digital bridge camera has caused Nikon, Canon and Olympus to introduce their own bridge cameras. Competition is intensified in the form of advertising, and brand exposure to build brand equity. All incumbent firms drive for product development and quality.

2. Threat of new entrants Incumbent firms large economies of scale Low threat of new entrants, as incumbent firms are producing at the lowest-cost production. Extremely high capital requirement intangible and tangible capital requirement: Existing firms are highly experienced and the industry is driven by knowledge and innovative capacity. For example, manufacturer Canon has an extremely advanced quality assurance, where no dust are prohibited to touch the production line of its lenses and mirror-house, as it can affect the function and quality of a camera. The extensive investment in robotics is expensive.
Atiqah Ismail Direct and Strategic Marketing 2012

COMPETITIVE ENVIRONMENT: PORTERS FIVE FORCES

2012

Buyers switching costs are high - (see B2C in bargaining power of buyers), switching costs of buyers are high hence, and new entrants may possibly be ignored by consumers. Expected price and product retaliation if a new entrant was able to enter the market successfully, with a competitive product; price retaliation may occur if consumers are affected by the entrance, however incumbent firms may also ignore if customers are not affected by the entry. Even if incumbent firms are unlikely to be affected by entry of new firms, because of strong consumer base, and the nature of consumers as brand and quality conscious. Consumers are image quality driven, although all firms in the market are equally almost as attractive. The long-established brand in their evoked set will not prepare them to take the risk with new brands. Due to the uncertainty of success in the market, new entrants are unlikely or at least unpredictable.

3. Bargaining Power of Buyers Buyers bargaining power is low, both for B2C and B2B: B2C: Competing products are perceived to be highly differentiated; they are based on brand perceptions and highly dependent on consumers sophistication of the product, especially in the DSLR market. Consumers are very concerned about quality, and are not willing to bargain or trade price for quality. Consumers bargaining power is low. Switching costs are high -- DSLR consumers are unlikely to switch to other brands due to high investments in lenses, for example, a Canon user with a collection of Canon lenses will unlikely convert or switch to another camera brand such as Nikon or Olympus. Therefore, their bargaining power is low. B2B: Buyer power is relatively low - They must have a major global brand, such as Canon brand on their shelves to attract consumers and to assure consumers of their own credibility with availability of top brands. This is especially important for electronic and appliances retailers or specialist shops (non-electronic retailers) which are increasingly being adversely affected by online e-tailers selling cameras and accessories, as consumers are switching to online etailiers. They need global brands to compete with their online counterparts. Canon is a strong brand; hence Canon cameras are important to the buyers (both online and non-online retailers) profitability (Euromonitor, 2011). Buyers bargaining power is low. Canon is a big global brand and has the ability for forward integration. Buyers bargaining power is low.

Atiqah Ismail

Direct and Strategic Marketing

2012

COMPETITIVE ENVIRONMENT: PORTERS FIVE FORCES

2012

4. Bargaining Power of Suppliers Canons suppliers have relatively weak power. Canon practices open and green procurement. Which suppliers who wish to supply Canon will be required to send a proposal, but they must be up to Canons "Global Canon Green Procurement Standards" and guide established in 1997 which is based on its corporate philosophy Kyosei which emphasises the importance of the community and the environment. Canon takes its corporate social and environmental responsibility very seriously. Suppliers play by Canons rules and up to Canons quality standards. Canon has full in-house production of materials, including the manufacture of its production line, tools and equipments.

5. Threat of Substitutes Low threat of substitution Mobile phones and smart phones with camera functions They have the ability to meet the basic need of capturing an image. Analogue or film SLR cameras

ASSUMPTIONS: The model is based on the perspective of incumbent firms and assumes that: 1. Static and stable markets 2. Zero-sum game (rivalry) Competitors only succeed at the cost of others. Implies pure competition. The digital camera market industry is highly influenced by technological progress. However the model assumes that the industry is stable and static based on the industry environment and economic situation in the 80s which was relatively stable (Recklies, nd) than today, the industry environment have changed significantly. The digital camera industry is not static.

Dynamic Industry Competitors within the industry have the means to influence competitive forces, the industry structure. Downes (2000) have argued that digitization have challenged Porters assumptions of stable market. Digitization the internet and advances in technology have given competitors in the industry access to far more information. Hence, new business models are constantly emerging, in which even players from outside the industry have changed the basis of competition in the market.

Atiqah Ismail

Direct and Strategic Marketing

2012

COMPETITIVE ENVIRONMENT: PORTERS FIVE FORCES

2012

Mobile phones and smart phones (the communication industry) have started to integrate digital camera functions into their products; it is competing and significantly affecting the digital compact cameras (Euromonitor, 2011). They are not directly substitutable, because a camera cannot fulfil the function of mobile phones. Hence the structure of competition is changing. Nevertheless, Canon, Nikon or Fujifilm have no plans to build accessories for smartphones (AFP, 2012). Those who base their thinking solely on the Five Forces Model will not see these changes coming in time. Organizations can choose their own environment. Although both Canon and Nikon also compete in the compact digital camera market, their prime focus is on the development of their digital SLR market, while Sony focuses on the development of their digital compact. Digital compact camera market and DSLR markets have a completely different consumer base. DSLR consumers place foremost importance on quality and the least on price, while DCC are relatively price sensitive (Mintel, 2011). This makes Sony and Canon and indirect competitors.

Value net -- Co-opetition Rather competitive advantages now emerge from the ability to develop lasting relationship with costumers and to manage far-reaching networks of partnership for mutual advantage (Recklies, nd). Technology is an important driver for change in the digital camera industry. Alliance -- Kodak and Canon has formed an alliance to share technology in establishing Kodak-Canon 500-series, Kodak Professional DCS 520; using Kodaks digital back and processing unit, with Canon EOS1 body and interchangeable lenses. The 500 series is also sold by Canon as D5000 and D6000 model. Kodaks 400-DSLR series was an alliance with Nikon based on Nikons N90s body (Askey, 1999). Value-Net - Brandenburger and Nalebuff (1996) introduce the concept of value net, extended the Five Forces Model adding complementors to be a sixth force. Complementors refer to organizations that sell products and services that enhance the value of another firms products.

Hyper-competition The industry is constantly developing, innovating and upgrading. Canons constant upgrading and development of new products and hardware destabilises the digital camera industry, forcing competitors to react. Rapid rate of technological change and competition is based on ideas and innovation, and ability to execute it. Inability to compete or at least catch up with the increasingly advanced DSLR features, Pentax has been sold off, while Samsung has left the DSLR market for the same reason, as level of DSLR development has made Samsungs competitive advantage in DSLRs obsolete. In 2006, Konica Minolta had completely quit the market because it was too competitive and has sold its digital camera business to Sony.

Atiqah Ismail

Direct and Strategic Marketing

2012

COMPETITIVE ENVIRONMENT: PORTERS FIVE FORCES

2012

Product lifecycles are shorter, especially in the digital camera market. The digital camera market is indeed far than stable or static, as new markets are constantly emerging within the industry.

Despite the changes in the industry dynamics and business models (instable, dynamic and complex) Porters model is not entirely obsolete. The underlying idea is that every business operates in a framework of suppliers, buyers, competitors.

By: Atiqah Ismail

Atiqah Ismail

Direct and Strategic Marketing

2012