PORTER’S FIVE FORCES: THE AUSTRALIAN CHEMIST WAREHOUSE INDUSTRY

 Threat of new entrants

In the chemist warehouse industry, the new entrants come with innovation and new ways of doing things, and this puts extreme pressure on existing companies through a lower pricing strategy, reduced costs, and an improved value proposition for the customers in the sector. This is further enhanced by the fact that the requirements for entering the industry are minimal, making it easier for new companies and ventures to penetrate. Therefore, companies seeking to create a sustainable competitive edge in the industry will need to manage these challenges and build effective barriers (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

To address these challenges, companies can innovate their products and service delivery processes. This will include the introduction of new products, as they not only bring in new customers but also give existing customers a reason to remain loyal. They can also create economies of scale in order to lower the overall fixed cost per unit of product or service delivered. On the same note, efforts should be made towards building capacity and spending money on research and development. This is because new entrants are less likely to enter an industry if it is dynamic and has established players that regularly define the standards. These measures, when properly implemented, will reduce the window of extraordinary profits for the new entrants, and this will discourage them from entering the industry (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

The bargaining power of suppliers

Almost all the companies in the healthcare industry (including pharmacies) purchase their raw materials and semi-finished products from different suppliers. Therefore, when the suppliers occupy a dominant position, they can decrease the margin of profit that players in the industry can earn. Powerful players in the industry make use of their negotiation power to get higher prices from firms, but the overall impact of the higher bargaining power of suppliers is that it lowers profitability and, as such, limits the intention of new players to enter the industry (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

However, this issue can be addressed by: building an efficient supply chain with numerous suppliers; experimenting with product designs that are based on different materials to ensure that when the price of one material goes up, the company can easily shift to the other materials; and developing dedicated suppliers whose businesses depend on the company’s overall performance. If these measures are implemented, the company will be able to mitigate the bargaining power of suppliers and create sustainable business outcomes (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

The bargaining power of consumers

Usually, the tastes and preferences of consumers change over time. They continually seek to assess the best product or service that a company has to offer but are only willing to pay the minimal possible price. What this does is put pressure on the players in the Australian chemist warehouse industry in the long run. However, the smaller and more powerful the customer base is, the higher the bargaining power of the customers and their ability to force the company to increase discounted offerings. The expected implication is that it will decrease the interest of new entrants (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

In any case, this can be addressed by: building a large customer base, which will be helpful in reducing the bargaining power of the customer and providing the company with an opportunity to streamline its product and service deliveries; engaging in rapid product innovation in order to limit the bargaining power of the buyers; and reducing the switching behaviour of existing customers by understanding their precise needs and tailoring products and services that meet these exact needs. The measures are centred on creating sustainable loyalty and improved performance for the business (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

Threats of substitutes

When customers are able to access a new product or service that meets their similar needs in different ways, the industry will likely suffer in terms of profitability. For instance, Google Drive and Dropbox are substitutes for storage hardware drives, and their existence is having direct, adverse effects on the sustainability of storage hardware drives. Similar incidences can occur in the Australian chemist warehouse industry, which faces a high threat of substitutes, especially as companies in the industry offer related products and services. The threat of substitutes is higher when the company offers a unique product or service that has a higher value proposition than what customers can presently access in the industry. The Australian chemist warehouse industry faces a high threat of substitutes, with new outlets popping out regularly to offer similar products and services (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

In order to address this issue, companies will need to be service-oriented instead of just product-oriented. On the same note, they need to understand the core needs of the customers instead of just persuading them to make purchases. Finally, they need to increase the switching cost for the customers, as this could potentially force them to be loyal (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

Rivalry in the industry 

The implication of this is that when the rivalry among existing players in the industry is intense, prices will decrease along with the overall profitability of the industry. The Australian chemist warehouse industry is highly competitive, and companies that are not conscious of this extreme competition tend to lose out on profitability. Thus, this discourages new entry because competition takes a toll on the overall long-term profitability of companies in the industry (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

For companies desiring to enter the Australian chemist warehouse industry or those that already maintain a presence in the industry, this issue can be tackled by building sustainable differentiation. Additionally, they can also build scale that will allow them to compete better. Finally, they can collaborate with their competitors in order to increase their overall market share instead of just competing for small markets (Isabelle et al., 2020; Kumar, 2022; IBISWorld, 2023).

Essentially, analysis of Porter’s Five Forces has shown that the Australian chemist warehouse sector is highly competitive, and companies that wish to create a sustainable competitive edge and profitability in this industry will need to assess their overall capabilities as well as build a new outlook that will allow them to differentiate, position, and provide higher value for customers. The effects of this would be increased loyalty from these customers, which would enable the companies to build a strong business in the long run.

References

Kumar, V. (2022). Porter's Fiver Forces in Pharma Business. LinkedIn. Retrieved from: https://www.linkedin.com/pulse/porters-fiver-forces-pharma-business-viren-kumar

Isabelle, D., Horak, K., McKinnon, S., & Palumbo, C. (2020). Is Porter's Five Forces Framework Still Relevant? A study of the capital/labour intensity continuum via mining and IT industries. Technology Innovation Management Review, 10(6), 28-41. http://doi.org/10.22215/timreview/1366

IBISWorld. (2023, November 29). Pharmacies in Australia - Market Research Report. Retrieved from: https://www.ibisworld.com/au/industry/pharmacies/1878/