Boots Porter Five Forces Analysis
Five Forces analysis of Boots covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Boots is one of the leading pharmaceutical companies based out of UK. The amount of investment required to set up a pharmaceutical business are huge. Not only the production center is required, but also the cost of extensive research and development, the cost of getting raw materials at cheaper and competitive rates, distribution costs, marketing costs etc. All these make the entry to this business a very expensive affair. Boots has been in the business for long and now they have developed economies of scale. Also, the company is well known for selling good quality products and they have gained customer’s confidence. Any new company entering the market will first have to do extensive research and come up with innovative products and then market them to the customers. They also need extensive ties with hospitals and other medical institutions to optimize their sales. After all this and a few years in business will the company be able to enjoy the benefit of economies of scale. Because of all these factors, the threat of new entrants is low.
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This concludes the threat of new entrants in the Boots Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Boots:
With the growing awareness towards healthy lifestyle, people have also started changing the medicines they consume. They now focus on homeopathic medicines which can act as a substitute to Boots’ products.
Customers are becoming more aware regarding medicines and trying to cure diseases with other methods like yoga, homemade medicines etc. all these pose a serious threat to sales of Boots. It should also be noted that many of the vitamin and mineral deficiencies that a customer encounters can be improved if they take a goof nutritious diet. Because all these healthy choices cost almost the same as medicines and the switching costs are less, the threat of substitutes is high.
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Bargaining Power of Customers:
In the Boots Porter Five Forces Analysis the bargaining power of the customers can be explained as:
A variety of products from different companies are available for a certain segment. It is in the hand of customers which company’s products do they want to buy. A lot of times, all these products are sold from the same store and hence the unavailability of one can easily make the customer switch to the other company. The switching costs are negligible in this case. A company like Boots needs to gain recognition in the market and sell a bit differentiated products so that the customers will demand for them. It is also important to maintain good relations with doctors and physicians so that they can recommend Boots products as the patient is highly likely to buy the products recommended.
Even though there are no chances of backward integration from the customer’s end, availability of such diverse variety makes the bargaining power of customers a strong force.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Boots:
There are many suppliers in the market who sell the same set of products to all the pharmaceutical companies. There is very less product differentiation in the type of raw materials and machines required and thus it becomes easy for Boots to switch suppliers incase of any dispute. There are low chances of forward integration by the suppliers as these companies have patents on the methods of production and chemical formulas which they won’t disclose. Also, all the raw materials supplied by the suppliers does not have much other use, hence it is important that they maintain good relations with the company as it will help them not only have a continuous sale but also a name recognition in the market as they are working with Boots. Due to all these factors, the bargaining power of suppliers becomes very low in the pharmaceutical industry.
Competitive Rivalry:
The impact of key competitors in the Boots Porter Five Forces Analysis is as follows:
There is highly competitive rivalry in the pharmaceutical industry despite limited players because each player has already established themselves in the market and have gained a significant share on the market. Pharma & retail companies like Boots are enjoying the benefit of economies of scale. Because the products serve the same purpose, the customer is indifferent to the company and the switching costs are very low too. The market size grows at a very small pace and rather decrease in the coming years with the change in lifestyle. All these factors make it very difficult to retain the position in the market.
It is better for the company to invest in R&D to develop better and cost-effective ways of production because the competition is very intense.
To conclude, the above Boots Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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