Johnson & Johnson Porter Five Forces Analysis

Published in Companies category by MBA Skool Team

Here is the Porter’s Five Forces analysis of Johnson & Johnson that covers threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.

Threat of New Entrants:

The threat of new entrants in the Johnson & Johnson Porter Five Forces Analysis can be explained as follows:

Threat of new entrants would be low for a leading pharmaceutical & FMCG company like Johnson & Johnson. The company works in three types of business – Consumer Health Products, Medical Devices, and Pharmaceutical Products. As the technology changes in the Consumer Health Products domain, a new entrant can enter this domain, but still, with the kind of supply chain Johnson & Johnson has, it is difficult for the new entrant to beat the company in sales. The same is the case with the Medical Devices and Pharmaceutical Products sector, where research & development & supply chain play a crucial part in the product's sale. Manufacturing medical devices is a capital intensive business requiring high level of expertise. The research and Development budget of Johnson & Johnson was more than $12 billion, which is difficult for a new entrant to match up to.

The medical industry also requires lots of capital to cater to the legal issues and regulations of the countries. It is difficult for any new entrant to gather capital to invest in their business. Economies of scale also work in the company’s favor. Moreover, trust is of utmost importance in the medical business, and people trust the Johnson & Johnson brand, which is challenging to gain by any new company.

Image: company website

Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Johnson & Johnson:

Threat of substitutes should be moderate for Johnson & Johnson. In the Consumer Health Products domain, natural products can substitute artificial health products.

As far as pharmaceutical products go, there are not many substitutes available in the market for the products manufactured by Johnson & Johnson. Although, with new products invented, new products can substitute the older pharmaceutical products, and patents can prevent them from being replicated by Johnson & Johnson. With the fast advancing technology, the medical devices market is also substituting the currently available products with newer and better technology. Thus, the company needs to innovate and invest in research and development to beat the substitute in the market. However, as we have seen in the COVID Pandemic, Johnson & Johnson, with its extensive and talented research team and enormous funds, can research any medicine in demand and gain a first movers advantage by releasing it early in the market. This can prevent further substitutes from growing.

Bargaining Power of Customers:

In the Johnson & Johnson Porter Five Forces Analysis the bargaining power of the customers can be explained as:

Bargaining power of customers is moderate for Johnson & Johnson. The company’s customers include patients, doctors, online and offline retailers for its consumer health and Pharmaceutical Products business. Customers have many options in the Consumer Health Products sector and have a low switching cost, thus having high bargaining power. However, since the individual customer is not significant enough In terms of sales, Johnson & Johnson does not rely on an individual consumer for its sales and thus is less pressurized by its demands. As far as the Pharmaceutical Products business goes, very few companies are well known and well established as Johnson & Johnson. The brand name in this sector created credibility, which is essential in this business. The major customers in the medical devices business are hospitals, clinics, and general patients. Here the individual customer matters a lot because most of the business comes from big hospitals and clinics, which are the clients of Johnson & Johnson. But due to the unavailability of major companies in this domain, both company and customer are interdependent on each other.

Thus this reduces the bargaining power of the customer.

Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Johnson & Johnson:

The bargaining power of suppliers in the case of Johnson & Johnson is low. There are two kinds of suppliers for Johnson & Johnson, one for providing technical equipment for its medical devices business and others who provide raw materials for medicine and healthcare products. The company has a huge pool of more than 50,000 suppliers globally that give the company supplies for all three businesses. With so many pools of suppliers, Johnson & Johnson is not dependent on a single supplier and thus can negotiate better terms with them. This reduces the packing power of suppliers. Johnson & Johnson is their prime customer for many of its suppliers, and they do not want to lose it. The brand always try to innovate its supply chain to get the best efficiency for its supplies. It mostly has contracts with its suppliers to create a long term relationship. This further reduces the burning power of the suppliers in the future.

Competitive Rivalry:

The impact of key competitors in the Johnson & Johnson Porter Five Forces Analysis is as follows:

Competition in the industry for Johnson & Johnson can be said to be moderate. Johnson & Johnson's top competitors include Pfizer, GSK, Medtronic, Roche, Novartis, AbbVie, Reckitt Benckiser, Abbott, and Procter & Gamble. The company make sales of more than $80 billion and was among the top companies in terms of sales among its competitors. If we look at the Covid vaccination drive, Johnson & Johnson sold 300 million doses worldwide. Thus, Johnson & Johnson faces a high level of competition. The only way to reduce competition in the medical sector is by investing heavily in research and development and launching better products early in the market and through good distribution to reach the end consumer.

In the medical business, inventing and patenting also prevent a company from its competition, and hence that is why research and development become so important.

To conclude, the above Johnson & Johnson 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.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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