The threat of a substitute is the level of risk that a company faces from replacement by its substitutes. For more generic, undifferentiated products the threat is always higher that from more unique products. A company that has several possible substitutes that can easily be switched to has little control over the prices it sets or how it chooses to sell the product. It is an important factor because it affects company and industry profitability.
The Marketplace of Life We exchange the days and moments of our lives for money,for experiences and information or for love or just for fun. That currency and how it is spent determines our path through this world. Our paths are each unique and yet they intersect.
Sharing the experiences and learnings of life might make our lives easier. There are a million roads to take, a million mistakes to make.
Review and Recommendations Management Information Systems Introduction The combined forces of an economic recession and H1N1 epidemic are causing the hotel industry to suffer in a time of great challenge. Business travel is down because of the recession and the pandemic has significantly reduced tourism.
This paper examines the five forces which impact competitiveness within and thus the profitability of a competitor in the hotel industry.
From the guidance provided in the Five Factor Model recommendations are made to enhance and refine internet strategy for the considered hotel chains. Hotels The hotels chosen for this paper are: In previous work, Michael Porter outlined three additional generic strategies that could be used.
This is because of there ability to set up state of the art hotels and their ability to provide exceptional customer service with focus on customer relationship management. The customer relationship is a unique selling point USP.
Although the Internet alters industry structures and levels the competitive ground often dampening profitability in the industry, it can be used to encourage and promote greater profitability if properly implemented. In Porter considered these factors in light of the internet technologies.
The influence of the internet has been profound especially in the hotel industry. According to Porter each factor has a different relevance or impact on different businesses so they are presented below in order of impact for hotels.
Threat of Substitute Goods In the hotel industry there is usually another hotel just around the corner.
They appear in all price ranges, with varying levels of service and amenities. The constant challenge will always be to get the guest to choose your hotel over the competitor.
The internet makes the overall market more efficient while expanding the size of the potential market and creating new substitution threats. Given the potency of this threat a superb internet presence is vital.
Another ongoing threat is that another hotel chain may erode your customer base with a newly formulated internet approach or marketing campaign.
This is supported by the following quote from Luck and Lancaster It has become very simple for them to go online and book a hotel. They no longer need travel agents, corporate travel consultants or middle men of any kind to determine where they will stay.
They are finding internet businesses like cheaphotels. Both of these processes shift the bargaining power to the end user as the Porter model predicts and these same freedoms reduce the cost of switching so that loyalty is a thing of the past unless a particular hotel uses its one time opportunity when a customer stays at the hotel to deeply impress the customer with a unique and valuable differentiator.
Rivalry among existing competitors The rivalry among competitors in the hotel industry is fierce. When potential customers can learn about a hotel on line, the internet reduces the differences among competitors.
People tend to seek the best price for the best experience and the tendency is to reduce price to be competitive. The internet covers wide geographical areas so the market is widened increasing the number of competitors.
For example, someone who wants to spend the day in the historic town of Niagara-on-the-: Lake can easily choose a hotel in a near by town if the amenities or the price are better. Variable and fixed costs can be different in areas that are more expensive to live and work making it more difficult for a hotel in Niagara on the Lake to reduce their prices to the level of one in nearby St.
Barriers to Entry The initial investment in the hotel industry creates quite a barrier to entry but certain barriers to entering the hotel market are reduced by the internet.
A presence on the internet reduces upstart marketing costs somewhat, and gives the new competitor access to potential suppliers and resources.
Even a bed and breakfast can use the websites of large chains to understand the key marketing concepts and the lures for customers. Switching costs are usually nil for a consumer. McNurlin, A vital barrier would be differentiation.Its determination is to recognise potential profitability in an industry (Dess et al., ) by analysing the threats of new market entrants, threat of substitute products, the suppliers’ bargaining power, customer’s bargaining power and rivalry among existing firms.
The threat of new entrants appears to be stronger in the Asia- Pacific region specially, as the number of tourists continues to grow and new flight pathways are unveiled.
In this industry new entrants may surge as small, independent sole proprietors, yet the likelihood of their success is uncertain. The five forces model that shall be analyzed is comprised of buyer power, supplier power, threat of new entrants, threat of substitutes, and degree of rivalry.
Buyer Power The buyer power in this industry can be qualified as moderate, as its players are constantly offering ways to reduce it. See also: Porter’s Five Forces of Competition Threat of New Entrants Supplier Power Buyer Bargaining Power Intensity of Rivalry Complementors (Sixth Force) Threat of Substitutes Definition Porter’s threat of substitutes definition is the availability of a product that the consumer can purchase instead of the industry’s product.
Thus, Porters threat of new entrants definition revolutionized the way people look at competition in an industry. Threat of New Entrants Explanation The threat of new entrants Porter created affects the competitive environment for the existing competitors and influences the .
The remaining forces (bargaining power of buyers, rivalry among existing competitors, the threat of new entrants Threat of New Entrants The Threat of New Entrants refers to the threat that new competitors pose to current players within an industry.
It is one of the forces that shape the competitive landscape of an industry and helps determine.