Porter’s 5 forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979 (Source: http://en.wikipedia.org/wiki/Porter_5_forces_analysis). Strategy consultants occasionally use Porter’s five forces framework when making a qualitative evaluation of a firm’s strategic position. However, for most consultants, the framework is only a starting point or ‘check-list’ they might use. For a fuller discussion, see Porter, M., (1980) Competitive Strategy, Free Press.

Porter’s Five Forces include three forces from ‘horizontal’ competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from ‘vertical’ competition: the bargaining power of suppliers, bargaining power of customers.

The five forces are:

• The threat of substitute products (The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases)
• The threat of the entry of new competitors (Profitable markets that yield high returns will draw firms. This results in many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, then the profit rate will fall towards a competitive level)
• The intensity of competitive rivalry (For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc.)
• The bargaining power of customers (The ability of customers to put the firm under pressure and it also affects the customer’s sensitivity to price changes)
• The bargaining power of suppliers (Suppliers of raw materials, components, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources.)

Your assignment in week 5 is an e-business strategy assignment. Consider the strategic impact on your website in each of these ‘five force’ areas and write a little bit on each. So for the company you have chosen, please write a short blog posting (around 250-500 words max in total for all five areas) looking at each of these five areas. For example if you have chosen www.dabs.com, then write 50-100 words on the ‘threat of substitutes’, then 50-100 words on ‘bargaining power of customers’, and so on. Deadline is 6 pm Friday as originally indicated.

The threat of substitute products and services

Aeropostale is a clothing supplier therefore they would not be directly involved with the introduction of new technologies although they can use the Internet to advertise and sell new products. I find their prices fair compared to their competitors and feel this is the same with other consumers. Aeropostale sell online therefore they will have the sales from that. To increase sales they will need to change features of their website and compete alongside competitors and add in extra features to attract customers to their website compared to competitors. This will give them a greater share of the market. I feel Aeropostales website has enough features on it to win a wide audience although they could change the layout and design of it to compete on the same level as their competitors.

The threat of the entry of new competitors (barriers to entry)

Aeropostales main competitors at the moment are Hollister, American Eagle and Abercrombie and Fitch. I believe they would be a threat for Aeropostale due to the high demand for the apparel. In order for new competitors to break the barrier for entry they will have a bigger market to break through due to the high competitiveness and closeness of each competitor. I feel there is enough competition within this market without another company challenging them for a share in the market as they have already established their place in the market.

The intensity of competitive rivalry

Within the clothing market there is intense rivalry and each company wants to dominate the market. Within this especially for Aeropostale with so many competitors they will need to update products and marketing features to ensure they keep on top of the market. Within their website they will need to constantly update customers on offers and changes within the business to ensure they are constantly being reminded of Aeropostale and keep them updated on the company. The competitors are all similar to Aeropostale with all of them designing the same kind of clothing for similar age groups. The only difference between the competitors would be the price of clothing. Aeropostale use advertising better than their competitors I feel by emailing customers of special offers or any updates on the company. This increases the competitive rivalry between them as this gives them a boost in releasing their products to customers.

The bargaining power of customers/buyers

Customers can be a huge influence on a business due to their buying behaviors. If the company is willing to sell a large amount of stock through their website and make all the products available they will gain greater customer satisfaction which will encourage repeat sales. Customers need to be informed of this and a way in which Aeropostale do this is through emailing customers. They are able to get customer information through previous online sales where customers provide the company with their information on how they can be contacted. This can develop a customer/business relationship as customers may feel as part of the business and are led to believe they mean a lot to the company. Customers can put the company under pressure by stopping buying from them and state certain reasons which will make the company change to suit the customer.

The bargaining power of suppliers

The clothing for companies such Aeropostale and their competitors their products are made in companies such as El Salvador and other poorer countries. These countries charge less money for supplies than they would be if they were made in the USA. Suppliers can choose not to work with the company if prices are increased and they are not receiving extra money from the company. This will make the selling prices go up and make competition within the market fairer and more competitive as some companies prices are lower than others.

With the companies I have looked at they are the only places who supply their clothing. Customers have to buy straight from the business premises or website as products are not available through other suppliers.