Product Life Cycle Concept Essay
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Michael Porter’s framework of competitive analysis is applicable to our business organization known as D.T.DOBIE TANZANIA LTD which falls under the automobile industry in Tanzania and worldwide in the following ways: A.Barriers to entry/threat of new entrants.
It’s true that the average person can’t come along and start selling brand new cars. The emergence of foreign competitors with the capital, required technologies and management skills began to undermine the market share of brand new car sellers.
The following factors are barriers to automobile seller’s new entrants:
* Knowledge and Technology
Ideas and knowledge of servicing its supplied products is the one that provides competitive advantage to D.T Dobie over others. D.T Dobie uses machines of highest technology on checking and servicing its cars in which, gives them power to provide guarantee of up to one year service to its product since they are assured of what they are doing. The machines used by the skilled labor of D.
T Dobie to service and check the product are of high quality and they are very expensive in such a way that for new entrants firm in that business its an ownership barrier.
* Access to distribution
The demand for brand new cars in Tanzania is very low since they are sold at price that individual can’t afford. D.T Dobie is a greater supplier of brand new cars to Tanzania government institution, most United Nations (UN) organizations such as UNICEF, ILO, UNESCO, representative’s offices in Tanzania and embassies offices. Since these agencies are the most buyers of brand new cars, it has made D.T Dobie to have almost the access to distribution channel of selling brand new cars in which this act as barrier to new entrants since the buyers are few.
* Cost of entry
Initial capital required to set up a new firm is very high, it makes the chances of new entrants to be very less. * Product differentiation and cost advantage
The product has to be different and attractive to be accepted by the customers. D.T Dobie is the greater seller of brand new NISSAN, MITSUBISHI, MERCEDES BENZ, HONDA and HYUNDAI in which made them different from its competitor since it sells many brands than others. By being supplier of government cars has made them to be exempted when importing cars for government institution uses.
B. Bargaining power of suppliers:
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm and also may charge excessively high prices for unique resources. For organization of our choice i.e. D.T Dobie its suppliers for motor vehicles are TOYOTA, NISSAN, MITSUBISHI and MERCEDES BENZ. D.T Dobie is the seller of brand new car in Tanzania where by its inputs i.e. imported new cars from great multinational companies are so important for its survival, this leads the suppliers having great power over D.T Dobie since it’s not manufacturer but the buyer of finished product. Increase in production cost to one of suppliers on specified product may lead to switching cost which will be relative to D.T Dobie switching cost.
Degree of differentiation of inputs: D.T Dobie supplier’s supply different brands in which is difficult for them to switch from one supplier to another. For example if they are required by its customers i.e. government to supply cars that’s engine capacity is V8 that pushes them to deal with TOYOTA since other suppliers are not producing cars with that engine capacity. For parts suppliers, the life span of an automobile is very important. The longer a car stays operational, the greater the need for replacement parts. On the other hand, new parts are lasting longer, which is great for consumers, but is not such good news for parts makers.
C. Bargaining power of customers:
Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Since our organization of our choice D.T Dobie supplies and sell brand new cars in Tanzania, its customers are few since who can afford to buy brand new cars are government institution, most united nations (UN) organizations such as UNICEF, ILO, UNESCO, representatives offices in Tanzania, embassies offices and individuals who can afford to do so. Since its customers only want quality and guaranteed products this act as driving force to D.T Dobie to supply not only quality products but also quality parts and servicing those cars for the whole year as guarantee after being sold out.
Since D.T Dobie is greater supplier of brand new NISSAN, MITSUBISHI, MERCEDES BENZ etc. cars in Tanzania availability of substitute products such as FORD, RANGE ROVER, LAND ROVER which are supplied by its competitors like CMC motors and sold at same or at lower price than D.T Dobie’s have made some of its customers to shift to those brands as it’s known customers are very sensitive to price. Most of those mentioned above customers purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat.
D. Threat of Substitute Products:
Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces. Rather than looking at the threat of someone buying a different car, there is also a need to also look at the likelihood of people taking the bus, train or airplane to their destination. When determining the availability of substitute’s time, money invested, personal preferences and convenience in the auto travel industry should be considered. D.T.Dobie should consider the following factors when analyzing this force:
* Price Band
The threat that consumer will switch to a substitute product if there has been an increase in price of the product or there has been a decrease in price of the substitute product. If the price of the cars sold by D.T.Dobie will increase the main expected customers i.e. the one switching from bike to car will not move to car and will remain in the bike only. Thus the price is kept checked in this manner.
* Substitutes performance
The performance of the substitute sector also plays an important role in the success of the business. If the price of other dealers such as Africariers increases or the price band of the small segment falls, it will have effect on the quantity required in the market. It’s just on the price but also the features and the other services associated or it may be the status symbol story.
* Buyers willingness
Products with improving price/performance tradeoffs relative to present industry products. It will determine the willingness of the buyer to buy from D.T.Dobie.The willingness of the customers to go forward to try the new product in the market such as Mercedes Benz reduces the threat from substitute products.
E. Competitive Rivalry:
This force analyses the level of competition between existing players in the industry. Because an industry’s firms are mutually dependent, actions taken by one company usually invite competitive responses. Thus in many industries firms actively compete against one another. Highly Competitive industries generally earn low returns because the cost of competition is high. The auto industry is considered to be an oligopoly (a market condition in which sellers are so few that actions of any one of them will materially affect price) which helps to minimize the price-based competition. Below are factors which are seen in this force:
* Price Competition
Advertising battles may increase total industry demand, but may be costly to smaller competitors. Products with similar function limit the prices firms can charge. Price competition often leaves the entire industry worse off..
* Product Quality
Increasing consumer warranties or service is very common these days. To maintain low cost, companies consistently has to make manufacturing improvements to keep the business competitive. This requires additional capital expenditure which tends to eat up company’s earning. On the other hand if no one else can provide products/ services the way you do you have a monopoly. D.T.Dobie enjoys the monopoly of selling new cars are there are no competitors in this segment.
* Unique Selling Point
Also D.T. Dobie has advantage over its rivals because it represents a premium brand which is recognized over the world, they found a niche in the market where have a leading brand like Mercedes-Benzes a and a brand which people aspire to own .Also they are lucky to have Nissan one of the most renowned Japanese brands which is an equal pillar of their business.
DT Dobie is looking to grow and move forward, both in its native Tanzania and in surroundings regions. By building strong relationships and working closely with strategic partners, DT Dobie’s footprint keeps on growing. Also they are expanding by appointing more dealers around the country.
In terms of investing in our own equipment, this takes priority; they put all eyes on technology so they are not behind the rest of the world. Even if the latest technical advancement s are available to the company, DT Dobie makes sure any investment is benefiting to the organization as a whole .Every five years D.T. Dobie has an equipment review which makes sure the company is on right track, ensures investments have been successful and assesses whether upgrades need to be made in order to reach the next level, they are absolutely up to date. Also ensures that its vehicle testing equipment has modern standards which outnumber it from its rivals.
In general, any CEO or a strategic business manager is trying to steer his or her business in a direction where the business will develop an edge over rival firms. Michael Porter’s model of Five Forces can be used to better understand the industry context in which the firm operates. Porter’s Five Forces model is a strategy tool that is used to analyze attractiveness of an industry structure. Porter’s Five Forces model views the business from inside and outside. It focuses on assessing competitive position within the industry.