Competitive Environment of Hypermarket Industry

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INTRODUCTION

The case study below will be accessing the competitive environment of hypermarket industry using Porter’s Five Forces, as well as its competitive advantage strategies.

1.1 What is Hypermarket

Hypermarket is basically a combination of supermarket and department store. It is a huge retail facility which provides a wide range of products under one roof. It attract customers by allowing them to satisfy their routine shopping needs, from food and other household items, to clothing and appliances in one single trip. The concept of hypermarket is to focus on high quantity but low margin sales (Dibb & Simkin, 2001).

In Malaysia, some of the biggest players in hypermarket industry are like Carrefour, Giant, Jusco and Tesco. Other hypermarkets that are famous around the world are like Wal-Mart, ASDA, and Sainsbury’s. They are usually selling various products at a very low price, but in high volume.

1.2 What is Porter’s Five Forces

Porter’s Five Forces is developed by Michael E. Porter of Harvard Business School in 1979. It is a framework for industry analysis and business strategy. It studies how the five forces impact on an industry, and explains how the internal and external factors of an industry are effecting the competition within it. The five competitive forces that determine industry profitability are bargain power of buyers, bargain power of suppliers, threat of new entrants, threat of substitutes, as well as rivalry among existing firms. A successful business is to find out everything you can about your competition and industry dynamics, which refers to the commercial exchange among Porter’s Five Forces (Trump & Gordon, 2007). Figure 1.1 shows the relationship among the five forces.

Figure 1.1 (Porter, 1998)

  1. Porter’s Five Forces Industry Analysis

2.1 Bargain Power of Buyers

Porter used the term ‘buyers’ to describe what might also be called customers of an organization. It is one of the horizontal forces, including the bargain power of suppliers, which influence the appropriation of the value created by an industry. Buyers will have more power when buyers are concentrated, product is undifferentiated, low buyer switching cost, buyer are large and etc (Lynch, 2003).

In hypermarket industry, the bargain power of buyers is tremendously high because the switching cost for buyers is very low. Buyers can easily switch to another choice of hypermarket if they are unhappy with price, quality or services of a certain hypermarket. This strong bargain power of buyers had forced down the price of products in this industry. Since the products that are sold in hypermarkets are various, some of the factors that will affect buyers’ determination on where to shop are like the price of the products, choice of products, or even the shopping environment of the hypermarket.

The high bargain power of buyers will usually leads to price war because the switching cost for customers are very low. If the hypermarket can provide their products at the lowest price, customers will always wants to go back to them. One of the biggest hypermarkets in Malaysia which is Giant, their strategy to win the competitive advantage status is to ensure that their customers will always pay the lowest price for their products, bigger variety and great value (). This strategy applies the same for a lot of other hypermarkets such as Wal-Mart and Tesco, which means the price war in this industry, is actually very tight.

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2.2 Bargain Power of Suppliers

In Porter’s Five Forces framework, the term ‘suppliers’ is defined as those that supplies raw material to a certain firm. The bargain power of suppliers is determined by the switching cost of firms, supplier concentration, importance of volume to supplier, and so on (Porter, 1998).

In hypermarket industry, the bargain power of suppliers is medium as there is a balancing point between the switching cost of firms, and the importance of volume to supplier. As hypermarkets are selling a wide range of products, there are a lot of different suppliers for a certain firm. ...

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