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The Hershey Company Porter Five Forces Analysis
Strategic Management Essays, Term Papers & Presentations
Porter Five Forces Analysis is a strategic management tool to analyze industry and understand underlying levers of profitability in a given industry. The Hershey Company managers can use Porter Five Forces to understand how the five competitive forces influence profitability and develop a strategy for enhancing The Hershey Company competitive advantage and long term profitability in Confectioners industry.
Brief overview of The Hershey Company
The Hershey Company is one of the leading firms in the Confectioners. Over the years The Hershey Company has redefined the ways of doing business in Consumer Goods. The Hershey Company is listed at New York Stock Exchange (NYSE) and have a market cap 24.44B USD.
What are Porter Five (5) Forces
- Threat of New Entrants
- Bargaining Power of Suppliers
- Bargaining Power of Buyers
- Threat from Substitute Products
- Rivalry among the existing players.
Porter Five Forces is a holistic strategy framework that took strategic decision away from just analyzing the present competition. Porter Five Forces focuses on - how The Hershey Company can build a sustainable competitive advantage in Confectioners industry. Managers at The Hershey Company can not only use Porter Five Forces to develop a strategic position with in Confectioners industry but also can explore profitable opportunities in whole Consumer Goods sector.
The Hershey Company Porter Five (5) Forces Analysis for Consumer Goods Industry
Threats of New Entrants
New entrants in Confectioners brings innovation, new ways of doing things and put pressure on The Hershey Company through lower pricing strategy, reducing costs, and providing new value propositions to the customers. The Hershey Company has to manage all these challenges and build effective barriers to safeguard its competitive edge.
How The Hershey Company can tackle the Threats of New Entrants
- By innovating new products and services. New products not only brings new customers to the fold but also give old customer a reason to buy The Hershey Company ‘s products.
- By building economies of scale so that it can lower the fixed cost per unit.
- Building capacities and spending money on research and development. New entrants are less likely to enter a dynamic industry where the established players such as The Hershey Company keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry.
Bargaining Power of Suppliers
All most all the companies in the Confectioners industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins The Hershey Company can earn in the market. Powerful suppliers in Consumer Goods sector use their negotiating power to extract higher prices from the firms in Confectioners field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Confectioners.
How The Hershey Company can tackle Bargaining Power of the Suppliers
- By building efficient supply chain with multiple suppliers.
- Developing dedicated suppliers whose business depends upon the firm. One of the lessons The Hershey Company can learn from Wal-Mart and Nike is how these companies developed third party manufacturers whose business solely depends on them thus creating a scenario where these third party manufacturers have significantly less bargaining power compare to Wal-Mart and Nike.
Bargaining Power of Buyers
Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on The Hershey Company profitability in the long run. The smaller and more powerful the customer base is of The Hershey Company the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.
How The Hershey Company can tackle the Bargaining Power of Buyers
- By rapidly innovating new products. Customers often seek discounts and offerings on established products so if The Hershey Company keep on coming up with new products then it can limit the bargaining power of buyers.
- New products will also reduce the defection of existing customers of The Hershey Company to its competitors.
Threats of Substitute Products or Services
How The Hershey Company can tackle the Treat of Substitute Products / Services
- By being service oriented rather than just product oriented.
- By understanding the core need of the customer rather than what the customer is buying.
- By increasing the switching cost for the customers.
Rivalry among the Existing Competitors
If the rivalry among the existing players in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. The Hershey Company operates in a very competitive Confectioners industry. This competition does take toll on the overall long term profitability of the organization.
How The Hershey Company can tackle Intense Rivalry among the Existing Competitors in Confectioners industry
- By building a sustainable differentiation
- By building scale so that it can compete better
Implications of Porter Five Forces on The Hershey Company
By analyzing all the five competitive forces The Hershey Company strategists can gain a complete picture of what impacts the profitability of the organization in Confectioners industry. They can identify game changing trends early on and can swiftly respond to exploit the emerging opportunity. By understanding the Porter Five Forces in great detail The Hershey Company 's managers can shape those forces in their favor.
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