Due to the competitive nature of the pharmaceutical industry, a systematic industry analysis using Harvard Business School competitive strategy professor Michael E. Porter’s model of “Five Competitive Forces” which will shed light as to how to develop an edge over firms by understanding how the pharmaceutical industry operates. This concept involves a relationship between the degree of rivalry of pharmaceutical companies, threats of substitutes, buyer power, supplier power and barriers or threats to entry.
The intensity of the rivalry in the pharmaceutical industry is influenced by a large number of firms which must compete for the same customers and resources thus leading to a struggle for the market leadership.
In the pharmaceutical industry context, GSK must compete with leading healthcare company such as Roche in providing healthcare solutions to its consumers around the world.
When it comes to prescription and over the counter drugs, GSK must compete with companies such as Pfizer. Since the firm must sell large quantity of product, high levels of production lead to fight for market share.
The competition also intensifies if the pharmaceutical companies unload their products at the same time. The low switching costs also increases rivalry if products from one company are not that expensive as the other company’s brand which makes switching of brands easier.
Here, brand recognition and loyalty is very important. Pharmaceutical companies must work extra hard to capture its market which can also heat up the rivalry. Diversity of rivals is also very important especially in countries which can produce its own brand of medicine such as in countries like China, Japan and India who have pharmaceutical companies for its own drug research and development projects.
Another factor which can increase rivalry is industry shakeout.
For example, if there is a growing market for anti-allergy products, new pharmaceutical firms will compete with old firms in the market. This can lead to an increase in supply since the demand cannot support the products of the new firms. Due to price wars and intense competition, a shakeout happens.
In Porter’s model, substitute products refer to products in other industries. In the pharmaceutical industry setting, where drugs are developed every day, better drugs give consumers an alternative.
For example, if a certain drug is found not only as a cure to diabetes but also to migraine, chances are, people with diabetes would buy that product because of its value added property. “Substitute products perform the same function as the product, and are a competitive force as they can take away demand or tie up those customers who choose to use the substitute instead of your product. For example, generic brands are substitutes for original products and there are devices that can substitute for pharmacological treatments, like stents in thrombo-embolic disease. ” (Porter’s Five Forces)
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