Porters Five Forces and the Buyer Decision Process Business Models - Literature review Example

PORTER’S FIVE FORCES AND THE BUYER DECISION PROCESS MODELS] Critical Literature Review This review of literature involves a critical analysis and evaluation of Porter’s Five Forces and the Buyer Decision Process models, in light to the current business world, which includes both the commodity and finance markets. Among the famous and big ideas that Michael Porter produced is the Five Forces Model. Porter’s Five Forces Model is a tool that allows an organisation to establish the best competitive position to work out the dynamics in a market (Management Centre, 2012, p, 1). It originated out of Porter’s work on competition at Harvard University. The five forces identified in Porter’s Five Forces Model include; new entrants, buyers, suppliers, substitutes and existing competitors. According to Arons and Waalewijn (1999, p, 3), each of the five forces of Porter’s Five Forces Model is based on structural dimensions that collectively influence a company’s profit potential. The strongest forces are crucial in strategy formulation. Porter argues that when any of the five forces becomes strong, a company’s ability to raise prices and earn greater profit becomes limited. A strong competitive force is regarded as a threat because it depresses profits. Weak forces are viewed as an opportunity. However, it should be noted that though the strongest competitive forces outlined in the Porter’s Five Forces Model determine a company’s profitability and are extremely essential in strategy formulation, the most outstanding force is not always observable (Porter, 2008). For instance, rivalry is normally fierce in the commodity industry, and it may not be the factor that limits profitability. An ideal example is the low profitability which has been witnessed in the photographic film industry. This is not a result of competition among firms, but a result of a superior substitute product, digital photography. Therefore, a company has to cope with the substitute product as a priority strategy (Porter, 2008). The strength of a force may change over time, as industry conditions change. A company ought to recognize how changes in these forces lead to new opportunities or threats so that it can be able to set appropriate strategies. In addition, a company can learn to alter the strength of a force to its advantage (Hill & Jones, 2010, p, 43). This means that a company can reduce the strength of a force, which is likely to reduce its profitability so as to increase its profits. According to Henry (2011, p, 81), it is possible for managers to ascertain the profit potential of a company by analysing the relative impact of each of the five forces on their company structure. Therefore, an organisation can develop a structure that defends its position, in relation to the five forces. One of the weaknesses of Porter’s Five Forces Model is that it assumes that competitors can only succeed, if they ensure that other players in the market fail. This is not always the case, as shown by Henry (2011). He states that it is not always the case that competitors can only succeed at the expense of other players in the industry. There are cases of collaborative relationships between competitors which have benefitted both parties. An excellent example is that of Toyota and Honda, automobile companies, which work closely with their suppliers to ensure that they deliver parts at the right place, time and quality and only when needed so as to reduce inventory costs (Henry, 2011, p, 82). Other authors identify Porter’s Five Forces Model as a static model that assumes a stable market. It does not incorporate interaction between industry players. Further, it has ignored the role of internet and how organisations conduct their business online. The model assumes that all strategies are planned and created deliberately. This assumption is incorrect because in most cases, unexpected changes may cause abandonment of deliberate strategies and lead to the creation of unanticipated strategies to address such a change. Therefore, there is no planning (Henry, 2011, p, 83). Porter’s Five Forces Model is regarded as a descriptive model that is not operational. For instance, the model proposes competitive strategies, which include differentiation, cost leadership, focused differentiation and focused cost leadership (Schermerhorn, 2010, p, 147). However, the model fails to provide appropriate actions that organisations can put in place to achieve success from these strategies. Separately, Namaki (2012) argues that Porter did not anticipate the enormous changes that have been witnessed in the capital markets, while developing the Porter’s Five Forces Model. Such changes in the capital markets have led to changes in the corporate strategy, hence organisations have restructured for survival. This has altered the very premises of the five forces. For instance, capital markets shape buyer conditions and rivalry, a provision that was not initially incorporated in the original Porter’s Five Forces Model. According to Simon, (2009, p, 195), competition between established providers is extremely stiff, and it relates primarily to performance and innovation more than it relates to price. The current business world, which is characterised with stiff competition, requires that strategies that go beyond mere positions of direct rivals should be put in place, so as to ensure competition and profitability. Slater and Olson (2002, p, 18), believe that Porter’s basic premises are valid, but the five forces model is incomplete in representing the market factors that impact industry and business performance (Slater & Olson, 2002). The model ignores the issue of complement products, which is viewed as the sixth force. Compliments are products that go together with the products or services that a firm sells. These products and services can be an opportunity and a threat at the same time, depending on a company’s response (Best Progress, LLC, 2013). Porter’s Five Forces Model focuses on industry, despite the fact that industry factors have a minimum influence on profitability, growth and market share. The model neither values the company’s resources and capabilities, nor does it consider factors such as culture and good reputation. Other factors that have not been incorporated into the model, as noted by various academics include government regulation and the role of alliances. Besides, Porter’s Five Forces Model is considered a static framework that ignores time (Andriotis, 2004, p, 132). The model does not propose change strategies for salvaging a company’s poor condition, as well as, emergent and innovative strategies. The Buyer Decision Process Model is about consumer decision making processes. Buyer decision processes involve the decision making processes that consumers carry out about potential transactions before, during and after they purchase a product or a service. Given that this process is complex, the Analytical Hierarchy Process, can be used as a tool to evaluate buyer decision process (Sumi & Kabir, 2010, p, 2). Separately, Erasmus, Boshoff and Rousseau (2001, p, 82) assert that consumer decision making is about consumer behaviour patterns that precede, determine and follow on the decision process for the acquisition of need satisfying products and services. The buying decision process takes place over time. The traditional Buyer Decision Process Model consists a series of stages through which a buyer passes, which include; identification of needs, objective and specification establishment, buying alternatives identification and selection of seller or supplier (Lamb & Dunne, 2011, p, 77). The modern Buyer Decision Process Model, Kolter and Keller’s Model, has five stages; need recognition and problem awareness, information search, evaluation of alternatives, purchase and post purchase evaluation. By understanding buyer decision process, it is easier to understand the type of products, brands or services that a consumer normally purchases. A clear knowledge on how buyers purchase, consume and evaluate their satisfaction after purchase gives marketers a competitive edge in the market because marketers can be able to gauge consumers’ future decisions. A marketer can be able to base an outline of research of their customers on the Buyer Decision Process Model. It is also possible to overcome any weakness because marketers can assess the actual decision process of consumers (Maree, 2011). The Buyer Decision Process Model is associated with some weaknesses. First, it consists of an incorrect assumption that consumers follow a defined series of steps when making their purchase decisions. However, consumers do not even engage in some of the chronological activities that have been suggested by the Buyer Decision Process Model. Most consumers are engaged in non-conscious behaviour during decision making. Therefore, the Buyer Decision Process Model explains a subconscious process in a conscious manner. The actual decision making process is often disorderly and haphazard. However, they are adaptive, functional and opportunistic. In addition, the Buyer Decision Process Model cannot be used to identify future consumer behaviour precisely. This is because buyer attitudes and preferences cannot be revealed, as based on the previous experience, but they are brought out during decision making. It should also be noted that marketers may not control factors and characteristics that influence consumer decision making, but studying them provides a guideline in planning marketing communication strategies (Shah and DSouza, 2009, p, 175). Though the Buyer Decision Process Model assumes that the decision making process can be generalised, this model cannot be applied in a generalised context. Instead, it should be applied on customers’ unique situation. This is because consumers have the freedom to move their decision process as they wish and in whatever they please (Maree, 2011). As for Porter’s Five Forces Model, management can use it in formulating strategies that can increase their organisation’s profitability, but they have to incorporate all the factors, which may influence their profitability in analysis. Therefore, to establish the drive behind Sainsbury’s increase in sales, both models can be applied. However, recent versions of Porter’s Five Forces Model, which have been edited, should be incorporated while the Buyer Decision Process Model should be applied in customers’ unique situation. References Andriotis, K., 2004. Revising Porter’s Five Forces Model for Application in the Travel and Tourism Industry. Tourism Today, Vol. 4, No. 1, pp. 131-145. Arons, H. D., & Waalewijn, P., 1999. A Knowledge Base Representing Porters Five Forces Model. Retrieved from repub.eur.nl/pub/753/eur-few-cs-99-02.pdf‎ Best Progress, LLC., 2013. Strategic Planning Tools: Porter’s 5 Forces. Retrieved from http://www.bestprogress.com/wp-content/uploads/Porters-5-Forces.pdf Erasmus, A. C., Boshoff, E., & Rousseau, G., 2001. Consumer Decision-Making Models within the Discipline of Consumer Science: A Critical Approach. Journal of Family Ecology and Consumer Sciences, Vol. 29, pp. 82-90. Henry, A., 2011. Understanding Strategic Management. Oxford: Oxford University Press. Hill, C. W., & Jones, G. R., 2010. Strategic Management Theory: An Integrated Approach. Boston: Houghton Mifflin Press. Lamb, C. W., & Dunne, P. M., 2011. Theoretical Developments in Marketing. New York: Marketing Classics Press. Management Centre., 2012. Porter’s Five Forces Model. Retrieved from http://www.managementcentre.co.uk/downloads/portersfiveforcesmodel.pdf Maree, A., 2011, November 29. The Strengths and Weaknesses of the Standard Consumer Decision Process Model. Retrieved from http://www.annamaree.biz/the-strengths-and-weaknesses-of-the-standard-consumer-decision-process-model/ Namaki, M. E., 2012, April. Does the Thinking of Yesterday’s Management Gurus Imperil today’s Companies? . Retrieved from IVEY BusinessJournal: http://www.iveybusinessjournal.com/topics/strategy/does-the-thinking-of-yesterdays-management-gurus-imperil-todays-companies#.UywmSKDZhdg Porter, M. E., 2008, January. The Five Competitive Forces That Shape Strategy. Retrieved from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Schermerhorn, J. R., 2010. Exploring Management. Hoboken: John Wiley and Sons Press. Shah, K., & DSouza, A., 2009. Advertising N Promotion: An IMC Perspective. New Delhi: Tata McGraw-Hill Press. Simon, H., 2009. Hidden Champions of the Twenty-First Century: The Success Strategies of Unknown World Market Leaders. New York: Hermann Simon Press. Slater, S. F., & Olson, E. M., 2002. A Fresh Look at Industry and Market Analysis: Understanding Markets beyond the Five Competitive Forces Model. Business Horizons, Vol. 45, No.1, pp. 15-22. Sumi, R. S., & Kabir, G., 2010. Analytical Hierarchy Process for Higher Effectiveness of Buyer Decision Process. Global Journal of Management and Business Research, Vol. 10, No.2, pp. 2-9. Read More