Published by MBA Skool Team, Last Updated: February 26, 2022
Porter’s Five Forces Analysis of Philips 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.
Philips Five Forces analysis helps to analyze its current position in the market based on multiple internal and external factors like competitors, customers, suppliers (vendors and partners), financial strength, future scope & alternate solutions.
Let us start the Philips Porter Five Forces Analysis:
The threat of new entrants in the Philips Porter Five Forces Analysis can be explained as follows:
Philips was founded 1891 and started its operations by manufacturing light bulbs but now operates in 3 main division: Personal Health, Connected Care and Diagnostic and Treatment. The threat of new entrants is high in this industry as it is closely related to tech industry, hence has a lot of scope of innovation and startups are always booming into this industry. The capital requirements are high in this industry, but the government gives a lot of subsidies so that new ideas could come up which further makes the threat of new entrants high. The products differentiation is high due to the technology innovations. The also get easy funding from the venture capitalist as checking feasibility of a product is comparatively easy which would further increase the threat of new entrants. Philips has created a brand loyalty which would raise the psychological switching cost and reduce the threat of new entrants. Building a distribution network similar to Philips for the new players would be difficult or take years to make which would decrease the threat of new entrants. Hence overall we can conclude that the threat of new entrants is high in this industry.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Philips:
The threat of substitutes is high in this industry as there is lot of innovation going around in this field.
In the availability of superior alternatives, customer approval of the alternative product, and product targeting user demands, the danger of substitutes is significant for a brand like Philips. The danger of substitutes, on the other hand, is moderate in the short to medium term and reasonable over time. Competitors and startups are putting intelligent gadgets into their goods and making them more environmentally friendly. The changing attitude of people to always use the latest technology available in the market is increasing the threat of substitutes as the firms are more willing to create more value and better use experience for the customers.
Bargaining Power of Customers:
In the Philips Porter Five Forces Analysis the bargaining power of the customers can be explained as:
The bargaining power of customers is high as there is lot of scope of innovation and firms are more willing to create more value and better use experience for the customers. The switching cost is low for the customers of Philips as they can easily switch between the brand which is giving more value for money. This industry is highly price sensitive and with lower switching cost for the customers the firms usually go for competitive pricing. In this industry the buyers have full information about the product over online channels and can easily compare to come up with most suitable product for them which would further increase the bargaining power of customers. The threat of backward integration is low for a company like Philips as the customers don’t have the expertise and equipment to create a product this would decrease the bargaining power of the customers.
Hence overall we can conclude that the bargaining power of customers is high in this industry.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Philips:
The supplier’s industry especially the chip manufacturers a major component is dominated by a few companies in Southeast Asia and is more concentrated than the industry it sells to this would increase the bargaining power of the suppliers. It has been seen how the shortage of chips in the market has been affecting the prices and increasing the bargaining power of the customers. The risk of forward integration for a company like Philips is moderate as the firms manufacturing can integrate if they assume that there is higher return in the business this would further increase the bargaining power of the suppliers. The overdependence on the supplier products is affecting the business badly. The supplier’s products like the chips are an important component of the buyer’s business which is increasing the bargaining power of the suppliers. Hence, we can conclude that the bargaining power of suppliers is high in this industry.
The impact of key competitors in the Philips Porter Five Forces Analysis is as follows:
Philips has several competitors in the market already. Some of its leading competitors are Sony, LG, GE etc. The consumer electronics industry is projected to grow significantly globally. This shows how competitive the industry is and lot of firms are there in this market offering similar products which is increasing the competitive rivalry. There are in fast moving industry, so a lot of firms are competing with them. There are also a lot of equally balanced competitors. The switching cost is low which is also increasing the competitive rivalry.
Hence, we can conclude that the competitive rivalry is high in the industry in which Philips is competing.
To conclude, the above Philips 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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