Team Project

First, we will discuss the difficulties Natasha will be facing as she enters the industry.

Threat of New Entrants

The threat of new entrants refers to the possibility that new competitors may erode the profits of a firm.

The extent of the threat faced by Natasha depends largely on the existing barriers to entry. Natasha's business would face the threat of new entrants, as the barriers to entry to her business are low. This is so as there are many Peruvian handbag suppliers throughout Peru, and this makes it easy for competitors to access their own distribution channels. It is also likely that competitors are able to source for a lower price than what Natasha has agreed to pay her suppliers. It is also easy to obtain a retail shop at Bugis Junction or at surrounding locations, such as Bugis Street.

Assuming that the sale of Peruvian handbags is an extremely fresh industry, it would be lucrative for potential investors to venture into similar businesses. This is because there is a lot of room for the industry to grow, hence creating an influx of new competitors.

As mentioned earlier, Natasha can differentiate her products by working with her suppliers to create unique and one-of-a-kind designs that would only be available at her shop. She can also create a strong brand name through advertisements. This would help her obtain customer loyalty and strong brand identification, which can be achieved by producing consistently high quality goods. She would have effectively captured the market share and made it more difficult for new entrants to obtain her market share as they have to spend heavily to overcome existing customer loyalties.

Threat of Substitutes

Substitutes are products or services that can perform the same function as the firm's offerings.

For Natasha's business, there are many bags that can act as substitutes for her products. The products available are set at a wide range of prices, which can suit a wide range of customers' needs and preferences. If customers find that the handbags Natasha sells are too expensive or are unsuitable to their own tastes, they can easily turn to other alternatives. Customers may also want to purchase their handbags from more established and international brands. Not to mention there are also blogshops online which may sell similar products at lower price and provide a more convenient way to shop for the customers.

Internal Rivalry

Internal rivalry comes in the form of price competition, which is highly destabilizing and likely to erode the average level of profitability in an industry. Natasha's rivals come in the form of other handbag stores and they can easily match price reductions that would reduce profits for all firms in the industry. There are numerous and equally balanced competitors and Natasha would face instability from the price competition.

Even though Natasha tries to differentiate her products from other retailers by importing Peruvian handbags, Natasha's handbags may be perceived as lacking differentiation which results in it being a mere commodity. Hence, buyers would base their choice largely on price and services resulting in pressures for intense price and service competition.

However, for an industry such as the sale of Peruvian handbags, there are high exit barriers. To enter the industry, competitors would have to commit an amount of capital to import the Peruvian handbags. In the event that these Peruvian handbags do not sell, they would have to wind up the business. This capital expenditure would make competitors reluctant to enter the industry.

Bargaining power of suppliers

If Natasha only buys her handbags from one supplier, the supplier has very high bargaining power, as it is the sole input for her business. Especially since Natasha will only be selling Peruvian handbags that will probably be custom made, it will be hard for her to find alternatives. However, she can check this problem by getting other suppliers to provide her with handbags at the same time. This advantage is further amplified if there are many suppliers in Peru who can provide goods of comparable quality.

Also, if Natasha is importing large volumes of Peruvian handbags from the supplier, there is a possibility that the supplier will become dependent on Natasha's business. Hence, Natasha's suppliers would have reduced bargaining power. This would allow greater flexibility in cost prices of Peruvian handbags that Natasha's business is paying.

Bargaining power of Buyers

Buyers can threaten an industry by forcing down prices and bargaining for higher quality or more services. Since Natasha's handbags are commodities, there are no switching costs per se which will lock customers to her shop. Also, these being luxury items, customers are not inclined to purchase the handbags in the first place. However, the handbags which the buyers purchase may be perceived as not being differentiated enough, and it would be easy for them to find alternative handbag sellers.

Based on the above analysis, we've summarized and made conclusions of how Natasha's business would fare in the areas of each of Porter's 5 Forces.

Porter's 5 Forces Analysis

Forces Natasha's Peruvian Handbag Business

Threat of New Entrants * High

* Her shop is situated in a shopping mall. There are many areas for her competitors to exploit

Buyers' Bargaining Power * High

* The buyers have no switching costs

Suppliers' Bargaining Power * Medium

* Suppliers provide very specialized products

* Can source for multiple suppliers

Threat of Substitutes * High

* There are an abundance of other choices in the shopping malls with different boutiques offering different types of handbags

* Consumers can go online and buy from blogshops

Internal

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