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Industries differ regarding structure, channels of distribution, size, alternatives for its customers, consumer wants and needs, product lifecycle and growth. ASOS is a global beauty and fashion retailer which sells own-label and branded products online. Porters postulates the five factors which combine to ascertain the of competition in a market or industry and they include: the level of competitive rivalry, the threat of substitutes, the buyer's bargaining power, suppliers' bargaining power and the threat of new entrants to the industry (Varga, 2010, p. 2). Concerning strategy analysis, the model is used in understanding if new products are profitable. Porter's five model interacts with the customers, intermediaries, competitors, and suppliers-who constitute the micro-environment. The model is an important tool that helps a business to understand the competitiveness within the environment in which it operates and identifying the potential profitability of its strategy. Therefore, this report seeks to assess how the management at ASOS can use Porter's 5 forces model to analyse the nature of competition within the retail cosmetics market.
Intense rivalry among the current players in the fashion industry implies that prices will drop and consequently the profitability of the players will drop. ASOS exists in a competitive industry that takes a toll on its overall profitability. The competitors include Boots, Superdrag, Rimmel, Marks and Spencer and L'Oreal. Opportunities for competitive advantage exist for ASOS through the on-site experience which enables its customers to navigate through and discover the latest offerings as well as recreate their looks. Additionally, strategic and sparing price reductions present opportunities for ASOS. Non-dependence on discounts is an opportunity for ASOS since it sells products that are unique and cannot be found anywhere thus giving them a competitive advantage. Expansion of mobile penetration is an excellent opportunity for ASOS since more consumers are willing to buy from mobile platforms. And finally, globalization is expanding, and thus retailers can be in a position to connect with millions of customers from around the world and thus grow the business. ASOS's management has to establish sustainable differentiation of its products and services, establish a scale for better competition and collaborate with the rivals to expand the market size instead of just competing from a constrained market.
The fashion retail industry gives rise to innovations and fresh ideas on how to do things that pile pressure on ASOS by way of cost reductions, low pricing strategies and giving new value prepositions to the customers they serve. The barriers to entry in the fashion industry include the economies of scale (van Luijken, 2012, p.78) enjoyed by the established firms, product differentiation, substantial capital investment, access to the channels of distribution and cost disadvantage independent of scale. Therefore, ASOS management has to enhance their economies of scale to reduce the fixed costs per unit. Also, it has to spend money on research and development and build capacities. In so doing, new entrants are less probable to join an industry that is dynamic where established firms like ASOS regularly define standards. Further, through the innovation of ASOS make-up, new customers are gained, and old ones pledge their allegiance to ASOS' products. The fashion industry is competitive, and opportunities exist for entrants to fill the market gaps. Consequently, the organization's management needs to manage the mentioned challenges as well as create effective barriers that will protect its competitive edge, which also serves as threats that prevent new entrants from joining the fashion retail industry.
According to Porter's threat of new substitutes implies that there exist several products in the same industry that offer the same benefits to their customers. In cases where new services or products meet the same customer needs in distinct ways, the profitability of the industry is affected. The threat of substitute goods or services is high when they provide value prepositions that are uniquely different from the current offerings in the market (Pearson 2018, p.15). The company stocks genuine merchandise and has zero tolerance policy for counterfeit products. However, alternative and differentiated beauty and make-up products are available thus distinguishing the firm from its rivals. The company also operates high street bargain stores across locations of its operation. Therefore, the company's management can tackle the threat of substitutes by becoming service oriented instead of just being a company that is product oriented. Additionally, ASOS needs to have knowledge of the core needs of its customers and not just to have an understanding of what its customers are buying. Also, product differentiation needs to be core in the form of quality, convenience, customization among others. Finally, the company's management needs to increase the switching costs for its consumers. Switching costs refer to expenses that consumers incur when the change their products, suppliers or brands (Sexton, 2010, p.358).
The most demanding lot in business constitute of buyers. Customers want to purchase the best available offerings and pay the least price possible. Consequently, the demands exert pressure on the profitability of ASOS in the long run. The more small and powerful the consumer base of ASOS, the high the bargaining power of the consumers and also the higher the ability to look for offers and discounts (Vecchi, 2016, p.167). Buyers have choices of making similar purchases from the rival firms. However, the good relationship between the buyers and ASOS which is a consequence of low buyer power in the process of negotiating prices. Due to the availability of substitutes, the importance of every customer to the firm, the switching costs and the customer base, a competitive edge is attained by ASOS. Thus, the intent of using high tech services in its application will increase the customer base. Additionally, rapid innovation of products such as the ASOS make-up can reduce the bargaining power of buyers since customers often seek discounts on existing and established goods. Finally, the management should ensure innovation is core to avoid the possibility of customer defection to rivals (this evidenced by the body + face category).
Firms in the retail business buy their materials or supplies from several suppliers. Therefore, suppliers who are in dominant positions tend to minimize the margins that ASOS's can reap from the market. Prominent suppliers in the sector utilize the negotiating powers to set high prices (Magretta, 2011, p.45) for companies in the retail business. The overall effect of high supplier bargaining powers is that it reduces the ASOS's overall profitability. The prices from the suppliers are flexible and are dependent on product uniqueness, strength and size of the supplier and the number of suppliers for the different inputs. Additionally, the bargaining power of supplier increases with the efficiency of the supply chain, their logistics partners, and the returns and deliveries. ASOS's management can capitalize on supplier bargaining power by establishing efficient supply chains with several suppliers, trying different product designs with diverse material so that, in the event of price increases in one raw material, then ASOS can comfortably switch to another supplier. Finally, the management develops dedicated suppliers whose businesses are dependent on ASOS as exhibited by the deals signed with St Tropez, Maybelline among others.
ASOS's management may gain a more significant impression of what affects the company's profitability in the fashion industry. The administration can also identify trends which will change the company's course and an early stage and even adequately respond to exploit the opportunities that emerge. Through an understanding of Porter's model, ASOS management can shape the five forces to work in the organization's favour. The model is advantageous as opposed to other analysis models in that; it is more specific since it offers a framework for ascertaining the competition levels in the industry and how the macro elements impact ASOS's performance. Also, the model is very compatible with other analytical models such as PESTLE and SWOT analyses. However, the model is disadvantageous since it is centred on a qualitative study of the company's strategic position. The model does not offer a quantitative approach on how each factor and force impact the company's performance. ASOS's recommendation for action is to invest more in product innovation since the fashion industry is evolving. The risk likely to befall ASOS is the government's consideration of implementing the online sales tax.
Magretta, J., 2011. Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press.
Pearson, 2018. Management Themes. Compiled from: Essentials Of Management: A Concise Introduction; Fundamentals Of Strategy (2nd Edition); Operations Management (7th
Edition); Business Ethics And Values: Individual , Corporate and International Perspectives (3rd Edition)
Sexton, D., 2010. Trump University Marketing 101: How to Use the Most Powerful Ideas in Marketing to Get More Customers. John Wiley & Sons.
Van Luijken, A., 2012. Computer-aided Manufacturing and Women’s Employment: The Clothing Industry in Four EC Countries: For the Directorate-General Employment, Social Affairs and Education of the European Communities, June 1990. Springer Science & Business Media.
Varga, M., 2010. Analyzing the Austrian Fashion Industry According to Porter ́s Five Forces.
Vecchi, A. ed., 2016. Handbook of research on global fashion management and merchandising. IGI Global.
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