Business Infromation System Assignment

...

- The consumers’ concentration is low.

- Fixed cost or capital in running the business is insignificant.

- The government does not put much pressure and policies on the market.

- Low switching cost (It does not cost a large amount of money to for businesses to switch to another industry).

- Market share can be easily divided among competitors.

In specialty fast-food retailing, McDonald, Burger King and KPC have relatively low entry barriers. Actually, they do possess patents and trademarks. Especially, it also establish brand reputation online through advertisements on television, YouTube newspaper and other means of mass media. Moreover, the capital investment for new entrants are always significant in order to compete in the industry. As a consequence, with their standardized products and services at low prices, combined with a very strong brand, it is a big hindrance for new entrants to gain the business’ market share and economies of scale.

-

The power of suppliers:

In order for running a business, the inputs of raw materials, labor and finance is indispensable. Like the company’s goals to earn more profits, the suppliers also tend to seize more of the incomes and revenues for themselves. Then, they may implement strategies such as charging higher prices for better quality and faster delivery. Suppliers will hold outstanding power when:

- Inputs from suppliers are more concentrated as compared to the market which the company is selling to.

- What they are supplying has no substitute.

- It is difficult for the company to change or cooperate with more suppliers. This is due to high investment of company into manufacturing equipment and operations.

- Suppliers’ materials and machines are of the best quality.

- The supplier industry is monopoly.

Suppliers of McDonald’s may include Gavina Gourmet Coffee, Lopez Foods, Keystones Food and 100 Circle Farm who are providing coffee, drink, beef and potatoes. The respectable association between the industry and such suppliers stabilizes and moderates the bargaining power of providers. The dependence between McDonald’s is always equal and constant. This is because if they stop supplying raw materials such as beef and potatoes to the restaurants, the McDonalds’ business will be suffered and lose profits. The whole business performance will be affected accordingly. Besides, McDonald’s take benefits from suppliers with fair prices and costs of supply chain. On the other hand, suppliers are also satisfied with large and numerous orders from McDonald’s. However, there are many other suppliers that can replace current providers without any reduction in quality and price. There should be a gap in the buyer-supplier relationship.

4.3. The power of buyers:

Like suppliers, customers have a tendency to capture more value from the company’s products and suppliers for themselves. They can force down prices and request for more or even better augmented services. In this case, the industry’s profitability will be affected accordingly.

A customer is considered to be influential if:

- The number of consumers in the industry is minor.

- Every single customer may order in bulk.

- Buyers can easily find a substitute products and services with lower price and better quality.

- Switching costs for buyers to changing vendors are few.

The bargaining power of buyers in this industry is also low. There are a lot of consumers that McDonald’s is aiming at, regardless of age, gender, sex or religions. In addition, the industry already experimented and set the price floors, which can be seen at their menus located in every restaurant. The company also update their menus to offer more selections at various price points. This can cater to all kind of customer budgets. These strategies prevent buyers from holding high power to control over the business.

4.4. Threat of substitutes:

There is always a presence of substitution in every industry. Substitutes may be overlooked because they can varies in different forms as compared to the industry’s product.

As discussed above, the substitute goods can affect the industry profitability. When substitute products and services are numerous, variable, with overwhelmed quality, the company’s profit suffers seriously. As a result, a business should develop their product, marketing and advertisement strategies in order to fade the substitutes’ images in customer’s mind.

A substitute is powerful when:

- The value, price, quality and performance of the substitutes are more attractive than those of the industry’s products and services. For instance, the introduction of Viber, Skype or Line affect negatively on paid telephone service providers such as M1, SingTel or Star hub.

- The costs for shifting to the substitutes are low.

Apart from trying to distance itself from substitutes, the industry can also develop such strategies so as to turn their products into an attractive substitute.

McDonald’s can be deliberated as a fast-food service franchise. The foods and services that other restaurants offers such as Burger King, KFC or Wendy’s may be the substitutes for McDonald’s hamburger. Fried chicken can be substituted by Kentucky Fried Chicken. Sandwiches and subs can competed by Subway and the like. They are similar in ingredients but with a little difference that a customer can taste. Like McDonald’s, Burger King and KFC also promote their products and services competitively. Therefore, high threat of substitutes can affect the business profitability.

4.5. Rivalry among existing competitors:

The rivalry refers to price promotion, new product introductions, advertising campaigns, and service improvement and bug fixes. The higher the competition is, the more the industry’s profits suffer. The degree of rivalry in the industry can be seen at the market share among competitors.

Market share can be easily divided among competitors when: