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Porter's 5 forces_Body Shop!!


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Porter's 5 forces_Body Shop!!

  1. 1. Industry analysis of Body shop (Using five forces – Michael Porter) Presented by: Nazmeen Shaikh Iram Mokashi Rohini Das
  3. 3.  Founder: Anita Roddick, Brighton, An Italian Immigrant  Career: Human rights activist and environmental campaigner, best known as the founder of The Body Shop, a cosmetics company.  Year founded: 26th March, 1976, Brighton (England) Markets: Americas, Europe, Middle East/Africa and Asia 24000 stores in 61 countries Cosmetics Shop 1200 Products against animal testing Bought by L'Oreal
  4. 4.  Our mission at The Body Shop is to deliver with passion to our customers a unique experience by:  Creating a comprehensive range of naturally-inspired personal care products that offer performance, indulgence and great value  Communicating to our customers with passion, integrity and humors.  Providing a shopping environment that excites, inspires and informs.  Locating our points of sale worldwide in dedicated shops, in our customers’ homes and on the internet.  Operating our business with a strong commitment to the well being of our fellow humans and the preservation of our plant.  Reinvesting in the business to constantly improve our customers’ experiences. Survival: At the entrepreneurship stage the intended position is surviving, which is first strategy in the hierarchy of business objectives. Differentiation: Competitive strategy is differentiation. Anita made countless efforts for differentiation such as using recycled bottles and building up green-image of stores to show its environment awareness, campaigning as medium of advt., to attract potential customers.
  5. 5.  Expansion: As company expanded further, Anita focused on environment and people which gradually developed into five core values as the Body Shop’s mission. Here is the mission:  Against animal testing;  Activate self – esteem;  Support community trade;  Defend human rights;  Protect our planet;  These five values provided the position Body Shop chose:  care for people, care for the environment and concern for animal rights  and are essential components in its business strategy.  Under the guidelines of five values, Body Shop combines the concept  of running a business with social issues and also focused on cost.  But the strategy is still “Differentiation”.
  6. 6. Goal is to become sustainable: Reduce Reuse Recycle Find alternative product
  7. 7. FOUNDER “You’ve got to be hungry – for ideas, to make things happen and to see your vision made into reality.” Dame Anita Roddick. Human Rights Activist Founder of The Body Shop..
  9. 9. Porter’s Five Forces Diagram Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Threat of New Entrants Rivalry among existing Competitors Michael E. Porter
  10. 10. Competitive Rivalry Threat of New Entry Suppli er Power Buyer Power Threatof Substitutio n Threat of New Entry: Time & Cost of entry Specialist Knowledge Economies of Scale Technology protection Barriers to entry etc. Supplier Power: Number of Suppliers Size of suppliers Uniqueness of service Your ability to substitute Cost of changing Threat of Substitute Substitute Performance Cost of Change Competitive Rivalry: Number of Competitors Quality differences Other differences Switching costs Customer Loyalty Costs of leaving market Buyer Power: Number of customers Size of each order Differences between competitors Prices Sensitivity Ability to substitute Cost of changing
  11. 11. Five-Forces  Developed by Michael Porter: forces that shape and influence the industry  or market the organisation operates in.  Strength of Barriers to Entry - how easy is it for new rivals to enter the industry?  Extent of rivalry between firms – how competitive is the existing market?  Supplier power – the greater the power, the less control the organisation has on the supply of its inputs.  Buyer power – how much power do customers in the industry have?  Threat from substitutes – what alternative products and services are there and what is the extent of the threat they pose?
  12. 12. Porter’s five forces model…  According to Porter’ theory, competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition.  Question: How attractiveness of industries brings for long term profitability ??  So here we use Porter’s five forces to show the industry attractiveness of Body Shop.
  13. 13. Industry Analysis of Body Shop (Five Forces) Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Threat of New Entrants Rivalry among existing Competitors
  14. 14. Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Threat of New Entrants Threat of New Entrant  High entry barriers.  Mature market.  Long-established companies Threat of New Entrant Rivalry among existing Competitors
  15. 15.  Porter said that if the barriers to entry are low then new entrants will be attracted by any rise in industry profitability.  According to Body Shop, firstly, through 28 years hardship, Body Shop established a strong image with good reputation by the customers, so for the new entrant it is not easy to build up a strong brand loyalty in short time.  Besides, through advocating Fair community trade, Body Shop formed good relationship with the long-term suppliers of raw materials in the 3rd world countries, which is more like a friendship than a partner in business environment and can not be imitated by new entrant.  In addition, Body Shop share a developed distribution channel through its own franchise system and appropriate technology of natural ingredients against animal test, all of above set big barriers for new entrants.
  16. 16.  On the contrary, the existing products of Body Shop are becoming more and more homogeneous.  For the reason that the natural ingredients seem to be not the only core technology of Body Shop, for instance the big competitors Bath & Body works, Garden Botanika with huge resource had entered the cosmetic market in the middle of 90th with similar natural cosmetic products.  Because of lack of innovation in new product, designing, packing, from 1996 to 1998, around 20 franchises cancelled the contract with Body Shop in USA which resulted in dramatically declining of market share of Body Shop in USA.  So we conclude a mix response to this force as technology and innovation can open the door to new entrants.
  17. 17. V/S
  18. 18. Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Threat of New Entrants Bargaining Power of Buyers  Own retail shops Consultants.  No significant group buyer Bargaining power of Buyers Rivalry among existing Competitors
  19. 19. The bargaining power of buyer seems to be strong.  As for the cosmetic product markets, although the Body Shop doesn’t concentrate on youths, the majority of consumers are the young generations who are more inclined to be changeable comparing with the old generations and concern less on the environment and public issues.  So it becomes harder to attract them to buy the products of Body Shop mainly because of the differentiation of the social issue.  They are more professional on technology so they could easily know the information of the price and the new functions of other competitor’s products.  At the same time the buyer have nearly no switching cost to change another cosmetic products. And nowadays the products of other rivalry such as Baths body, Garden, Botanika have little different functions of product at relatively cheaper price and the products of Sainsbury are easier to accessible, so it is more likely for them to change the products of Body Shop.  In conclusion the bargaining power of buyer is strong.
  20. 20. Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Rivalry among existing Competitors Threat of New Entrants Bargaining Power of Supplier  Small Suppliers Community.  Trade Bargaining power of suppliers
  21. 21. • According to the Body Shop, the bargaining power of suppliers is not strong, for the following reasons. Firstly most of suppliers of Body Shop come from 3rd world countries and they have limited partner in this industry so that they did not have monopoly power in supplier industry. • Secondly because the suppliers come from poor community, they have expensive switching cost because Body Shop is not only the biggest buyer of them but also contributed to the beneficence of their community, so it is impossible for them to find other beneficent buyer to cooperate with. It is two-win cooperation so that the supplier would not be likely to destroy it. • So we can see the bargaining power of suppliers is not strong.
  22. 22. Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Threat of New Entrants Competitive rivalry:  Mature market  Long-established companies  Niche Players Competitive rivalry Rivalry among existing Competitors
  23. 23. Competitive Rivalry • In the cosmetic market, it is obvious that because of high market growth rate and profit, more competitors flocked to this profitable market. • For instance Bath & Body Works, Garden Botanika, H2O+ all copied the strategy of Body Shop and entered in this market. • The sales of Bath & Body Works increased from 1.12 billion dollars in 1993 to 10 billion dollars in 1999. • Because this cosmetic industry belongs to mature industry, so the total market share does not seem to increase rapidly. And to be frankly, the functions of the cosmetic products are surprisingly similar, so there is likely to be intense competition over market share which usually results in the price wars intermittently making the profit of this industry vulnerable. • All of above proved that the threat of competitive rivalry is strong.
  24. 24. Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Threat of New Entrants Threat of Substitutes:  Substitute Performance  Cost of Change Threat of Substitutes Rivalry among existing Competitors
  25. 25.  According to porter’s five forces, the threat of substitutes comes mainly from relative price, technology and costs of switching. As for this point, the substitutes of Body Shop’s products are the traditional cosmetic products without focusing on environmental issue and being made of natural ingredients.  In the past, the threats of substitute are strong, but nowadays it becomes a trend to use the cosmetic products being made of natural ingredients and most cosmetic companies all provided this kind of products such as P&G, so that we need not worry about the threat of substitutes.
  26. 26.  Threat of new entrants  High  Bargaining power of customers  Low  Bargaining power of suppliers  Low  Threat of substitute products  Medium  Competitive rivalry within an industry  Medium POTENTIAL NEW COMPETITORS CUSTOMERS SUPPLIERS SUBSTITUTES COMPETITORS PORTER’s FIVE FORCE MODEL
  27. 27. Can Body Shop succeed in the future?  Anita avows to the public that the key to the success of Body Shop is to combine environment and social issue into its business in that way her products could be differentiated from others. Undoubtedly Body Shop achieved remarkable success in the 1990s with the faith in five core value.  However with the new entrant come into the cosmetic industry and great changes took place in the value of new generation, firstly low cost advantage of Body Shop cannot be retained by the Body Shop became other cosmetic company provided cheaper products.  Then more cosmic company also provided the natural cosmetic products and also contributed to society. From this point, Body Shop cannot differentiate from others.  Finally because of the intense competition among increasing numbers of new entrants, Body Shop lose much market share and became a “Problem Children”. Let us see it clearly using Boston Consulting Group’s Portfolio Model.
  28. 28. THANK YOU