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A Porter's Five Forces Model and Porter's Value Chain Case Study

by Mohd Fahusli bin Ali GP02660

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PRIMARKCompany Background

!- Founded in June 1969. In the

Republic of Ireland it continues to trade as Penneys.

- a subsidiary of international food, ingredients and retail group Associated British Foods (ABF).

- One of the biggest chain stores in Europe.

- By Oct. 2014, there are 250 stores across the Ireland, UK and Europe.

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PRIMARKPurpose & Objective

!- Making an expedition on the market share;

- Achieving an improvement on the sales;

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Business Strategy !

- Sourcing supply cheaply; - Purchasing from the factories directly;

- Simple design, targeting the customer under 35 years old

Porter’s Five Forcesis a simple but powerful tool for understanding where power lies in a business situation; !useful, because it helps to understand both the strength of the current competitive position, and the strength of a position the company considering moving into.

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Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. !Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. !Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. !Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. !Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.

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The Five Important Forces

PRIMARK Porter’s Five Forces Analysis

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Competitive Rivalry

(Moderate)

Threat of New Entry

Buyer Power

Threat of Substitution

Supplier Power

The treat from the new entry in this segment is low since the cost of setting up a company in the region are high.

The competition in the market are high as the customer have a very wide choice of alternative option offered by the other competitor such as ASDA, M&S and H&M.

There are some risk (moderate) from existing low price retailers but none that can be called a substitute.

No single big supplier and less bargaining power of suppliers.

Few low price retailers with similar vast range

of products.

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SWOT Analysis

Strengths - Large amount of stores in

Europe - Organised business structure - Low price - Ethical trading initiative

Opportunities - Expending in UK and Europe - Sharing high quality

products and services overseas

Weaknesses - Negative impact on labours

issues and working conditions

- Lacks of marketing strategies

Treats - Strong competitors; like

Next, H&M, M&S, ASDA - Risk on matching the needs

of the customer in fashion and uniqueness

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Porter’s Value Chain ModelA value chain is a set of activities that an organization carries out to create value for its customers. Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they're connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help to understand the sources of value for the organization. !Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers. Using this viewpoint, Porter described a chain of activities common to all businesses, and he divided them into primary and support activities, as shown below.

Value Created and Captured – Cost of Creating that Value = Margin

Step 1 – Identify sub activities for each primary activity. Step 2 – Identify sub activities for each support activity.Step 3 – Identify links.Step 4 – Look for opportunities to increase value.

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PRIMARK Porter’s Value Chain Model

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Marketing and Sales - Primark’s target customer is

fashion-conscious and wants value for money.

- No commercials, no TV, no magazines. Place their cheapest items at the front of the store, attracting passing trade and word of mouth.

Outbound Logistics - Primark does not introduce online retailing for its customer, so all sales are conducted in its 250 stores. Transportation after sale are done by the customer.

Inbound Logistics - Product are transport to all

Primark stores across the Ireland, UK and Europe.

- Effective supply chain, bringing together manufacturing units in China, India, Turkey, Bangladesh and other countries.

PRIMARK Porter's Value Chain

PRIMARY ACTIVITIES

Operations - 250 Primark stores across the Ireland, UK and Europe

Service !- Limited level of customer services.!

- Low number of sales assistants in their store.

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PRIMARK Porter's Value Chain

Procurement (purchasing) - Sourcing the highest quality

products from many countries. - Carried out in strict accordance

with the Primark Code of Conduct which incorporates the United Nations Charter, Chapter IX, article 55.

Human resource management - Primark has practice of high level in

Human Resource.- Produce a Code of Conduct where

all suppliers are expected to follow.

- Since 2009, Primark in partnership with SAVE, has provided education and support to workers and their communities in south India.

Technological development - Primark does not introduce online retailing. The introduction of new item are place in their website. !- Constantly reinforces its business model across social media sites and as its marketing strategy.

Infrastructure Large stores to encourage volume shopping.!

SUPPORT ACTIVITIES

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PRIMARK Porter's Value Chain

(Potential Improvement)

Web-based training

Upgrade CRM

Network upgrades Introduce e-Purchasing

Loyalty Program

Customer database Data Warehouse

1. Web-based training for new employees will make operations more efficient & improve service.

2. Upgrade Customer relationship management (CRM ) platform to be more flexible & able to report customer buying pattern.

3. Improve company network and introduce customer online purchasing (ePurchasing)

4. Improve customer online database; introduce data warehouse.

5. Introduce loyalty program to customer.13

References:!

http://www.mindtools.com/pages/article/newSTR_66.htm !http://www.mindtools.com/pages/article/newTMC_08.htm !http://www.ukessays.com/essays/business-strategy/an-organisations-process.php !http://www.threeq.com.au/announce/AnnouncementPrimark.pdf !http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4299950/Primark-overtakes-Asda-as-biggest-low-price-clothing-retailer.html !download.businesscasestudies.co.uk/retrieve_primark_15_cHJpbWFyay !http://www.primark.com/en/our-ethics !http://www.abf.co.uk/investorrelations/annual_report_2013/operating_review/retail !http://www.edigitalresearch.com/news/item/nid/517944649

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