Colgate Porter’s Five Forces analysis covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry. Let us start the Colgate Porter Five Forces Analysis:
The threat of new entrants in the Colgate Porter Five Forces Analysis can be explained as follows:
The threat of new entrants is low to moderate for Colgate as the barrier to entry is high, the cost for setting up the production unit and establishing a resilient supply chain is high, and hence is a difficult task for any new entrant. The threat is considered low to moderate and not low because the loyalty of customers in this segment is relatively moderate.
Colgate enjoys good market share and hence is not very concerned about any new entrant, as competing with a giant like Colgate would be an arduous task as the major players in the industry exploit the economies of scale to a great extent that any new entrant would not be able to exploit.
Although local brands have tried to capture the market by offering a new product in many countries, the share of Colgate hasn’t seen any significant dip; one of the reasons for this is the people’s trust in the brand.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Colgate:
The central part of Colgate’s revenue comes from its toothpaste and toothbrush line. Since it’s a vital product, the threat of substitutes is low, the demand for toothbrushes and toothpaste will always be there, and there is no viable substitute product to replace them.
Mainly because the market is not affected by external factors; even during the pandemic or WFH culture, people still brush their teeth, so the demand does not fluctuate.
Being the market leader Colgate enjoys a comfortable position, but this still comes with its own challenges, it is crucial that Colgate continually innovates and offer a wide range of product if it needs to maintain the top position, even though the threat of substitution from a new product is low but the threat of substitution by a competing brand is still a significant one. Colgate must invest in its R&D activities and ensure to fulfill the need of customers, as long as this is done the threat of substitutes for Colgate is Low.
In the Colgate Porter Five Forces Analysis the bargaining power of the customers can be explained as:
The Bargaining power of the customer is low, being an essential product there is a very low chance for customers to bargain, however as the dental hygiene market is a very competitive one Colgate must price their products at a competitive price because of various alternatives that are available to the customer as the brand loyalty in this segment is relatively low.
The indirect power of the costumers to ensure that the prices are low is high due to the extensive competition in the market, as the products offered in the market are similar and do not offer a distinct advantage over the other, the switching cost is almost zero and hence the brands must set the prices accordingly.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Colgate:
The competitive rivalry in this Industry is high although for Colgate it is an advantage as it is the market leader and controls the market. Colgate uses this competitive rivalry to its advantage as it has economies of scale to a great extent that its rivals can’t to the same extent except for the likes of big brands like Pepsodent, Crest etc.
It also uses this rivalry to ensure that no one competitor becomes too strong to pose a significant threat. The rivalry force is strong in the market but being the market leader, it is not much affected by it, we can say that for Colgate the competitive rivalry is moderate given it position in the market.
Although the competition is not that high for Colgate, it must still keep on innovating to ensure that the smaller competitors don’t start to capture the market as the cost of shifting to a new brand is very low and the brand loyalty in the segment is fairly moderate.
The impact of key competitors in the Colgate Porter Five Forces Analysis is as follows:
As previously mentioned, other large players in the industry have a similar value proposition as Audi, such as Mercedes Benz, Rolls Royce, BMW, etc. There are also certain new entrants that have the potential to change the industry trend and landscape, such as Tesla in the luxury car industry. All the above-mentioned brands constantly invest in innovation to differentiate themselves and focus more on customer experience, safety and promotion to win them over. Over time, this competitive rivalry has only grown.
Owing to all these factors, competitive rivalry can be considered high.
To conclude, the above Colgate 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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