Every market or industry is different. Take any selection of industries and you should be able to find differences between them in terms of:
Size (e.g. sales revenue, volumes, numbers of customers)
Structure (e.g. the number of brands and competitors)
Distribution channels (how the product gets from producer to final consumer)
Customer needs and wants (the basis of marketing segmentation)
Growth (the rate of growth and which businesses are growing faster or slower than the market)
Product life cycle (the stage of the life cycle for the industry as a whole and for products and brands within it)
Alternatives for the consumer (e.g. substitute products)
The result of the above differences is that industries vary in terms of how much profit they make. To take two examples:
Why do airlines make so little profit (and such big losses)? There are several factors, including:
Very intensive competitor rivalry – mainly on price
Low barriers to entry – lots of new airlines who want to set up
Suppliers of aircraft & equipment are powerful – can charge high margins
Customers have lots of substitute options – e.g. rail, car
High fixed costs – airline losses rise significantly if revenues fall only slightly since it costs roughly the same to fly half-empty planes as full ones
By contrast, why are profits so high in the soft drinks market? The answer is mainly that:
Customers and suppliers have little power – Pepsi has many millions of individual consumers, and thousands of retail distributors none of whom has much influence over the business
There is high brand awareness & loyalty = less consumer desire for substitutes
High barriers to entry – how do you enter a market dominated by Coca-Cola and Pepsi?
What we have illustrated above is some analysis that you would obtain by considering the Five Forces Model.
The Five Forces Model was devised by Harvard Professor Michael Porter. The model is a framework for analysing the nature of competition within an industry.
