Michael Porter's 5 Forces in Online retail Store/Retailer Flipkart

Michael Porter's 5 Forces, Diagram, Diagram Explanation, About Michael Porter, Supplier Power, Buyer Power, Competitive Rivalry,Threat of Substitutes, Threat of New Entry, Porter's Five Forces For Online Retailer, Recommendations for Flipkart, Conclusions

1. Project Report on Porter’s Five Forces
in Online Retail Store - Flipkart

2. MICHAEL PORTER
Michael Eugene Porter born on May 23, 1947 is a Professor at The Institute for Strategy and
Competitiveness, based at the “Harvard Business School”. He is a leading authority on competitive
strategy and the competitiveness and economic development of nations, states, and regions. Michael
Porter's work is recognized by many governments, corporations and academic circles globally. He chairs
Harvard Business School's program dedicated for newly appointed CEOs of very large corporations.
Michael Porter is the author of 18 books and numerous articles including Competitive
Strategy, Competitive Advantage, Competitive Advantage of Nations, and On Competition. A six-time
winner of the “McKinsey Award” for the best Harvard Business Review article of the year, Professor
Porter is the most cited author in business and economics.

PORTERS FIVE FORCES
Porters Five Forces is a framework for describing factors that affect the profitability and attractiveness of
industries. Named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that
shape every industry, and helps determine an industry's weaknesses and strengths.

1. Supplier Power
2. Buyer Power
3. Competitive Rivalry
4. Threat of Substitutes
5. Threat of New Entry
1. Supplier Power
Here we 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 us, the cost of switching from one supplier to another, and so on. The fewer the supplier
choices we have, and the more we need suppliers' help, the more powerful the suppliers are.

2. Buyer Power
This is driven by the number of buyers, the importance of each individual buyer to one’s business,
the cost to them of switching from one’s 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.

3. 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.

3. 4. Threat of Substitutes
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
.
5. 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.





Porter’s Five Forces Model

4. Porter’s five forces for Online Retailer “FLIPKART”:

Supplier power:
Here, suppliers are the manufacturers of finished products. For any product, there are many suppliers online,
so they can’t show power on online retail companies. For example, if you take computers category, there
are many suppliers like Dell, Apple, Lenovo, and Toshiba everyone wants to sell their products through
online retails like Flipkart. Selling online saves a lot of money for the manufacturers, and as many people
nowadays prefer purchasing product through online stores, Companies cannot afford to lose this channel.
So, in this industry the supplier power is low.

Buyer power:
Buyers in this industry are customers who purchase products online. Since this industry is flooded with so
many players, buyers are having lots of options to choose. With many competitors like Amazon.com, eBay,
Snapdeal etc. Customers get a wide range of choices. Customer would prefer the one who would provide
goods at reasonable price, deliver it fast and provide them with other benefits like Cash on Delivery, EMI
facilities, other offers etc. Here Buyers have more power.

Competitive Rivalry:
Competition is very high in this industry with so many players like Jabong, Snapdeal, Amazon,
Homeshop18 etc. Many competitors means more choices for the customer to choose from. This also
increases the cost incurred by the company to stay in the customer’s mind i.e. on Promotions and
Advertisements etc. Giving the customer better deals, making customer’s experience delightful and
continuous innovation can help a company to stay at top even with tons of competitors around. Overtaking
Myntra was a very intelligent move by Flipkart done to overcome the competition given by Myntra.


Threat of New Entrants:
Threat of new entrants is very high in this online retail industry because of following reasons:
 Indian government has allowed 51% FDI in multi-brand online retail and 100% FDI in single brand
online retail. So, this means foreign companies can come and start their own online retail companies.

 There are very less barriers to entry like less capital required to start a business, less amount of
infrastructure required to start business. All you need is to tie up with suppliers of products and you
need to develop a website to display products so that customers can order products, and a tie up with
online payment gateway provider like bill desk.

 Industry is also going to grow at a rapid rate. It is going to touch 76 billion $ by 2021. Industry is
going to experience an exponential growth rate. So, obviously no one wants to miss this big
opportunity.
With the new entrants like Jabong, Snapdeal etc. rapidly racing towards the top position, Flipkart
needs to devise new strategies to avoid this threat from new entrants.

5. Threat of substitutes:
 Substitute for this industry as of now is physical stores. Their threat is very low for this industry
because customers are going for online purchases instead of going to physical stores as it will save
time, effort, and money. With the advent and penetration of internet and smart phones, future in
retail belongs to online retail.

 When we compare relative quality, relative price of product a person buys online with physical
store, both are almost same and in some cases, online retail store offers more discounts and this
attracts the customer to purchase products online.

RECOMMEN DATIONS FOR FLIPKART :
Flipkart was not into fashion and apparels business in online retail. Since the margins are very high in this
space, Flipkart cashed on this opportunity by overtaking the most famous player in this category -“Myntra”.

With some more small moves Flipkart can earn more profits, they are-
 Since online retail is going to boom in the coming years, it is necessary for this industry to have
logistics support. Since Flipkart is already having its own logistics arm “E-kart”, it can provide this
logistics service to its competitors in online retail industry and make more profits.
 In this industry, price matters a lot to customers. If same product is offered by two retailers at two
different prices, customers will go for the lowest price. So, Flipkart should try to offer the products
at lower prices. This can be done by optimizing its logistics services. Since logistics cost plays an
important role in determining the price of the product. Flipkart should try to optimize its supply
chain in such a manner that its supply chain costs decreases and thereby product price too
decreases.
 Big data and predictive analytics are going to play a big role in the future. There are many tools
like R, SQL available to mine the data and to find out the patterns. So, Flipkart can use data about
its customers like what are they buying, what are their buying patterns and can target them by
using predictive analytics. For example, Amazon uses customer’s purchase history and suggests
products according to it.
 Flipkart can also employ relationship marketing into it. Instead of mainly focusing on customer
acquisition, it should also focus on customer retention. Because loyal customers are more
profitable when compared to new customers.

REFERENCES
 http://geniicon.blogspot.in/2013/05/strategic-analysis-flipkart-competitive_27.html
 http://economictimes.indiatimes.com/topic/Porter-five-forces-analysis
 http://en.wikipedia.org/wiki/Porter_five_forces_analysis
 http://www.cgma.org/Resources/Tools/essential-tools/Pages/porters-five-
forces.aspx?TestCookiesEnabled=redirect
 http://en.wikipedia.org/wiki/Michael_Porter