Sector Analysis of Consumer Products
...r firms to have a low cost structure because of the price sensitivity of consumers. Companies within this sector tend to have high initial fixed costs and spend a lot of money on plant and equipment (for example the auto industry). High product differentiation is also a trend in consumer products. The products and services offered by companies are different from one another in terms of features, design, and pricing. Industry growth rate appears low because it is a mature industry (for example the retail and auto industry have been around for decades). Overall, there is a low threat of new entrants because of the high entry barriers. Threat of Substitute Products When looking at the threat of substitutes, we looked at the relative price of substitute products, the relative quality of substitutes, and the switching costs of consumers. In general there is a high threat of substitute products because consumers have a lot of options when it comes to choosing a car, where to eat, or what clothes to buy. The quality and price of the substitutes are relatively equal, keeping consumers price sensitive. The switching costs in this sector are low for the consumers allowing them to make their choices freely with no strings attached. This also adds to the price sensitivity because consumers are looking for the best product for the lowest price. The Intensity of Rivalry Between Existing Firms In general, the size of the individual competitors in this sector is large; however the number of competitors is few. For example in the auto industry there are three main players. (GM, Ford, and Chrysler Group). This low number of participants intensifies the rivalry in this industry. Merging and Acquisitions are common in this sector. The reason for this is the mature stage of the sector. Furthered growth requires consolidation among existing firms. The Bargaining Power of Buyers Buyers have significant power over suppliers in this sector. Reasons for this include a large number of small suppliers in which the buyers can choose from based upon price and quality. If supplier prices get out of line, buyers can easily switch to another supplier without incurring significant switching costs. Companies within the sector purchase products from suppliers in large volumes. This allows buyers to negotiate price and service agreements catered to their needs. For example, Procter & Gamble set up a distribution center within a short distan...