Knox, 1 Dusty L. Knox IMGT 2400 Ms. Kayser 2012 January 26 Chapter 1: Exercise 1 – Using Porter to Evaluate the Move Rental Industry Threat of New Entrants Bargaining Power Rivalry among Bargaining Power of Suppliers Existing Competitors of Buyers Michael Porter’s Five Threat of Substitute Forces Model Products or Services Entering into the movie rental business is risky. New technology and increased internet speeds have introduced a competitive new market leaving many movie rental stores out of business. Buying power is low and so is supplier power. An individual or organization wishing to enter this market should do careful research and determine a product line and strategy that will attract customers. There has been a shift from consumers going down to their local video store to downloading on-line a movie rental. Increased internet speeds and satellite services make it fast and convenient to get most any movie you want with the touch of a button without ever having to leave your house for less than what it would cost in fuel to drive to a video store. We have witnessed several video stores in our own community going out of business. A new business would need to invest in technology that would make it possible to supply to a culture that has Knox, 2 shifted to a demand of instant gratification and zero tolerance. Any problems in your system or supply and your customers will simply go to the next best competitor who is just a click away. As a new business looking to enter the movie rental business you will find that both buying power and supplier power are low. Competition is high giving consumers many options as they rapidly make the change to on-line rentals. According to a December 2011 market report by IBIS World (http://www.ibisworld.com/industry/default.aspx?indid=1370, 25 Jan 2012) many of these competitors have exclusive agreements with industry suppliers for movie distribution making it difficult for a new business to enter the market. With so many options out there, such as Amazon, Blockbuster, Hulu, iTunes, Netflix, Redbox, DishNet, DirectTV and Best Buy’s CinemaNow.com to name a few, suppliers have a wide variety of existing options for movie rentals that they can watch on their televisions, computers, tablets, game boxes or even their phones. Many of these existing businesses already have an existing infrastructure and resources that enable them to take advantage of changing technology to be on the leading edge of supply as they compete with each other to stay at the top of the market. Most of them also have a loyalty program of some sort to retain supplier power. Entering into this business could be risky. A startup business would need to develop relationships with suppliers and build a strategy that would be inviting to consumers to increase their supplier power. The positive side is that the cost of technology is rapidly decreasing and with no physical inventory or shipping costs your product costs could also be low. A startup business could take advantage of consumers who are frustrated by the required memberships and monthly fees of competition by offering a commitment free service that is simple and easy to use. Advertising on the internet reaches so many people that you could acquire a market share of business and be profitable. With the right strategy and investment an individual or organization could be successful, but they will need to do the proper research first.
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