Question

Briefly explain which of the five competitive forces is involved in each of these business developments. a. The effect on Apple as Microsoft introduces the Surface Laptop computer b. The effect on McDonald's as White Castle and Taco Bell start selling breakfast food c. The effect on Target retail stores when Harry's razors cuts into Gillette's share of the razor market d. The effect on the publishing firm Hachette when Amazon bargains to lower the prices of the books Hachette sells on Amazon's site e. The effect on the AMC movie theater chain of IMAX increasing the fees it charges to theaters to use its technology

Short answer

a. Threat of new entrants (Microsoft with new product). b. Threat of substitute products/services (White Castle/Taco Bell with breakfast menu). c. Bargaining power of suppliers (Harry's razors affecting Gillette's market share). d. Bargaining power of buyers (Amazon negotiating lower prices with Hachette). e. Bargaining Power of Suppliers (IMAX increasing its technology use fees for theaters).

Step-by-step solution

Evaluate the Case of Apple and Microsoft

The situation here represents 'Threat of new entrants'. Microsoft, a new entrant, introduces a product (Surface Laptop) directly in competition with Apple's products.

Evaluate the Case of McDonald’s, White Castle, and Taco Bell

With White Castle and Taco Bell beginning to serve breakfast, they become new competitors for McDonald's in the breakfast food market. This represents 'Threat of substitute products or services'.

Evaluate the Case of Target Stores, Harry's Razors, and Gillette

Here the situation revolves around the 'Bargaining power of suppliers'. If a supplier (Harry's razors) manages to significantly reduce Gillette's market share, it could impact the costs, delivery and availability of products for Target.

Evaluate the Case of Hachette and Amazon

This scenario is an example of the 'Bargaining power of buyers'. Amazon, one of Hachette's most significant buyers, is using its purchasing power to negotiate lower prices.

Evaluate the Case of AMC Movie Theater and IMAX

Here, the situation is about 'Bargaining Power of Suppliers'. IMAX, being a supplier, is increasing its fees, which would affect AMC's expenses.

Key concepts

Threat of New Entrants

The threat of new entrants refers to the risk that new competitors pose to existing players in an industry. When a new company enters a market, they often bring fresh ideas, new products, and a desire to capture market share.
In the context of Apple's situation with Microsoft introducing the Surface Laptop, this is an example of a new entrant stepping into the competitive landscape of laptops and computers. Microsoft isn't entirely new to the tech world, but it is expanding its product lineup with the Surface Laptop, challenging Apple's long-standing dominance. New entrants like Microsoft may cause existing companies to innovate more rapidly, cut prices, or develop new strategies to maintain their market position.

• New entrants can drive competition, affecting sales and pricing strategies.
• They may also introduce innovative products that appeal to customers in new ways.
• Established companies must evaluate and adapt their strategies to safeguard their market share.

This pressure makes it crucial for businesses to constantly evolve and improve their offerings to stay relevant.

Bargaining Power of Suppliers

The bargaining power of suppliers is a force that analyses how much power a supplier has over setting the terms and conditions of supply. If suppliers have higher power, they can demand higher prices for their goods or services or increase fees.
This was seen in the case of AMC movie theaters dealing with IMAX, where IMAX, a key supplier, increased their fees. Such actions can significantly impact a company's operational costs, potentially forcing them to pass on increased costs to consumers or cut other expenses.

• Suppliers with specialized or unique offerings hold more power to set their own terms.
• Higher bargaining power allows suppliers to influence prices, supply availability, and quality.
• Companies often seek alternative suppliers or try to negotiate better terms to balance this power.

By managing supplier relationships carefully, companies can mitigate risks associated with high supplier bargaining power.

Bargaining Power of Buyers

The bargaining power of buyers is a force that refers to how much power customers have to influence the pricing and conditions of a particular company's offerings. When buyers have significant power, they can force companies to lower prices or improve quality to maintain customer interest.
For example, in the situation of Hachette versus Amazon, Amazon uses its significant buying power to negotiate lower prices from Hachette. As a major distribution channel, Amazon's demands can have substantial implications for Hachette's pricing strategies and profit margins.

• Buyers with high bargaining power can demand better prices or more features.
• This power usually grows when buyers purchase in bulk or when switching costs between products are low.
• To counterbalance, companies might focus on increasing customer loyalty and value.

Managing this dynamic is essential for companies to maintain profitability while satisfying their customers' demands.