Regan Milligan by xiaohuicaicai

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									                                                                              Regan Milligan
                                                                                    Bus. 444
                                                                                     3/16/02
Redone Industry Analysis


                                 1. Defining the Industry
       In this analysis I noticed two focal industries that I will focus on. The first focal
industry (which will be referred to as I1) is the “Retail Florists” who have an actual florist
shop. The second focal industry (which will be referred to as I2) is the “On-line Wire
Service”.


I1 =   Growers                   Retail Florists               Consumers
       Supplier                  Focal Industry                   Buyer


I2=    Retail Florists           On-Line Wire Service          Consumers
       Supplier                     Focal Industry                Buyer
                                                                               Focal Industry
                                        Flowers
                         Green Plants             Artificial Flowers
                                    Home Grown Flowers

                         Cards          Candy           Other “Gifts”


Substitutes


                                 2. Identifying the Key Players

I1 =   Key Players: Retail florist shops and supermarkets
       Suppliers: The growers of the actual flowers
       Buyers: Final buyer who purchases the flowers from the florists.
       Substitutes: Good substitutes = Artificial flowers & green plants
                  Other substitutes = Cards, candy and anything else that could be given
                                       as a gift to someone.

I2 =   Key Players: FTD, PC Flowers, TeleFlora, Inc.
       Suppliers: The retail florists
       Buyers: Final buyer who purchases the flowers from the on-line wire companies.
       Substitutes: Remain the same as in I1.
     National          FTD                     Medium Mobility Barriers
                       PC Flowers
                       TeleFlora, Inc.
                           I2


                                                              Retail Florists
       Local                                                  Supermarkets
                                High Mobility Barriers              I1
   Target
Customer Market         Shipping                                 Direct         Distribution
                                                                                 Method

       For the strategic map I have included both industries and put each industry in their
own strategic group. The first dimension is the “Target Customer Market”, which is
divided into “National” and “Local”. National refers to the fact that the companies in this
group cater to a nationwide market. Their customers can easily reach them regardless of
geographical boundaries. Local refers to the fact that the companies in this group
primarily have customers who are in the same city/town as their actual store. The second
dimension is the “Distribution Method”, which is divided into “Shipping” and “Direct”.
Shipping refers to the companies in this group having to ship their product (via FedEx,
UPS) to their buyers. Direct refers to the final buyer going to the florists shop or
supermarket and walking out with some flowers.

I1 Rivals = Direct: Florists shops & Supermarkets
           Indirect: FTD, PC Flowers, TeleFlora, Inc.
I2 Rivals = Direct: FTD, PC Flowers, Teleflora, Inc.
           Indirect: Florists shops & Supermarkets.
       Both industries are in competition with one another but they also complement
each other as well. I1 relies on I2 because I2 makes up “20% of a traditional florists’
sales”. I2 relies on I1 because they are their suppliers. I2 is made up of 52,000 florists
worldwide. “In the early 1990s, most florists belong to one or more of the 11 flower-by-
wire services serving the floral industry”.
       The mobility barriers that companies in I1 face to get into I2 are medium. Most
florists and supermarkets already have their own websites; which allows them to sell and
ship their flowers to their customers. A website also helps expand their target customer
because the geographical boundaries that currently exist will no longer be an issue. Since
building a website is out of a florists and supermarkets expertise they could hire a person
to build a website for them, however, price may be an issue here. Web designers vary in
price from very cheap to very expensive and some retail florists may not be able to afford
this technology. This is what makes the mobility barriers from switching from I1 to I2
medium.
       Switching from I2 to I1, however, is much more difficult. The companies in I2
would need the capital required to open a store, hire and train employees to run and
operate the store, and renting space available to operate their business. Currently these
are not expenses that they have to pay. The desire to move from I2 to I1 is also low. The
on-line wire service is the niche for these companies. They do not want to move from I2
to I1 because of the added costs and frankly, that is not what they do.
                               3. The Macro Environment
       The technological environment plays the biggest role in both industries. With the
help of shipping companies such as FedEx and UPS, florists were no longer limited to the
geography barriers of the cities where they ran their business. FedEx and UPS also made
the entire on-line wire service industry a success. Without them this industry could not
exist. Computers also help create the on-line wire industry and help connect a florist in
one town to a florist in another town. The growing telephone and credit card industries
gave “direct contact between retailer and growers… and provided a better way to pay,
thereby protecting both parties”. I see a trend towards more people using on-line services,
which may unfortunately, eliminate the traditional florists shops. Everybody is busy and
no one wants to take the time to go down to a florist shop and pick out a display of
flowers. Especially considering that on-line wire services have expanded their selection
of arrangements for all occasions. There are few people who really care about which
flowers go into their arrangement. Most people are happy to pick the standard
arrangement that the on-line wire services have already selected for their occasion.
Unless the florist shops can keep up with the fast-paced world of the Internet, they will
not be able to survive.
       The social environment plays another role in both industries. More people are
giving “corporate gifts” and a floral arrangement makes a perfect gift. The demand for
roses has also increased over the years because they make the best “I love you” gift. I see
a trend in giving flowers as a gift increasing because people have become more social
and busy, and flowers are a very convenient and welcomed gift.
        The microeconomic and political/legal environments were not really covered in
the case. However, the article did said that “More that $325 million worth of fresh cut
flowers had been imported from overseas…” Therefore we can assume that the barriers
to entry are low and our government does not regulate this industry making it easier for
foreign companies to enter the U.S. market. We can also assume that our currency
exchange rates, inflation rates and interest rates must be appealing to foreign markets. I
do not see any trends that may occur in these environments. I see things staying the same.
        The demographic environment was not covered in the case. However, I think that
as more foreigners move to America the demand for imported flowers from different
countries may have an impact on the industry. The case did state that, “Imports of fresh
cut flowers…were forcing prices down, causing some retail flower shops to lose market
share to nontraditional shops with low overhead”. As more foreigners move to America
the demand for flowers from their home country will increase causing the number of
imported flowers to increase, which will cause the industry to lower their prices, thereby
hurting the traditional florist shop.




                                        4. Porter’s 5 Forces
        The intensity of rivalry is high in both industries as well. Since there are many
websites, supermarkets and retail florist shops, which all sell, virtually, the same product,
customers switching costs are very low, increasing this threat. Trends show that in I1
(focal industry = retail florists) supermarkets are slowly wiping out the traditional florists.
Supermarkets have started expanding their floral departments, which has increased their
profit margin and has destroyed the profits of the traditional florists.
        Low product differentiation and low customer switching costs have an impact on
all of the forces in both industries. These two factors increase the threat of all of the
forces in both industries (with exception of the power of suppliers in I1, here these factors
are opportunities to the industry). Due to this fact I will no longer mention either one of
these factors.
       The threat of new entrants is high in both industries. It does not require much
capital to build a website or open a florist shop. The only barrier that new entrants may
encounter is the possibility of the key players in both industries having high control over
the distribution channel; however, the case did not mention this. All of these factors serve
as a threat to both industries because this will bring more competitors into a market that
already is saturated. Due to the changing technological environment, the Internet is also
increasing this threat as more companies can build a website with minimum capital and
begin competing in both industries.
       The power of the buyers is high in both industries due to the low concentration
level of buyers and their volume of purchase increases greatly around Valentines Day and
Mothers Day thereby increasing their power. The only opportunity for both industries is
the fact that the threat of backwards integration is extremely low. Most buyers are not
going to start growing their own variety of flowers and arrange them themselves. They
will always rely on both industries to supply them with flowers.
       The power of suppliers in I1 (retail florists) is medium. I am assuming that there
are fewer growers then there are florists and supermarkets and the fact that the
availability of substitute supplies are low increases the suppliers power, which threatens
the industries. The threat of forward integration by the supplier is high which also
increases this threat. Most growers already sell their flowers directly to the buyers,
skipping the focal industry entirely. However, the differentiation of the supplier’s product
is low and the industry’s switching costs are low which serve as opportunities for the
industry.
       The power of suppliers in I2 (on-line wire services) is low. The availability of
substitute supplies is high due to the fact that there are over 52,000 florists worldwide
who are members of FTD. From this we can see that the importance of the industry to the
supplier is high. The concentration of suppliers relative to the industry is low because
there are so many florists and only 3 major players in this industry. Differentiation of the
supplier’s products and the industry’s switching costs are low which diminishes the
supplier’s power giving opportunity to the industry. The only threat that the suppliers
could pose to this industry is the threat of forward integration. As stated before, many
florists have built their own websites to sell their flowers on-line, however, they are still
limited to their advertising and reaching customers nationwide.
       The power of substitutes varies. There are many substitutes to flowers (as pointed
out in the scope). However, some people (especially my own mother) do not see any
substitute for flowers. Boxes of candy or even fake flowers are not an option when
shopping for my mother for Mothers Day. She only wants flowers and that is what I
always get her. Due to people like her the power of substitutes is non-existent. On the
other hand you have people like myself who do not appreciate flowers. Flowers do not
serve any purpose in my mind and I would much rather have some candy or even the
money that a person would spend on the flowers instead of the actual flowers. Because of
people like me the power of substitutes is high.
       Neither one of these industry’s is attractive. The threat of new entrants is too high,
competition is fierce and buyers have too much power. Due to increasing trends of the
supermarkets expanding their floral departments and destroying the traditional florists
you will not survive in I1 as a traditional florist. Unless you team-up with an existing, big
Internet company (i.e. MSN, Yahoo) your website in I2 will not be seen by potential
buyers thereby ruining your on-line flower business due to lack of business. The
possibility that the existing players have total control over the distribution channels and
their suppliers also decreases the attractiveness of entering this industry.




                                    5. General Lessons
   1. You must change with the technology or else you will become obsolete.
   2. Geography barriers can be broken; do not limit your business to one area of this
       world.
   3. Your competitor can also be your partner and help your business.
   4. Economies of scale matters: The bigger you are, the easier it is to succeed.
                                  6. It Reminds Me Of…
   1. In regards to I2 (on-line wire services), the cigarette industry because there were
        only 2-3 major players who controlled the entire industry and held major contol
        over their suppliers.
   2.   Dell computers because of the mass number of competitors and products lacking
        differentiation. Regarding I2, finding that on-line niche and being the first pioneer
        and standardizing the industry.
   3. Possibly BMG because of the trend of the “giants” (supermarkets) killing the little
        guys (retail florists). Scale will become king. The same will be true in I2 because
        the more familiar a website is the bigger and more power it gets. But a website
        can only become familiar if it a “giant” (MSN, Yahoo) or if one of them becomes
        your partner. In I2, the positive feedback theory where past winners are better
        positioned to win in the future may fall into place.


                                      7. Group BAFI
        Our group will be analyzing the on-line music industry. For our strategic map the
dimensions that we chose were “Distribution Method” and “Product Width Line”. For the
first dimension “Distribution Method” we broke it into 2 categories: 1. “Shipping” refers
to the companies that use FedEx, UPS or any other shipping company to distribute the
final product to the buyer. 2. “Retail” refers to the companies that have an actual retail
store where the buyer can walk into the store and purchase the product right there. For the
“Product Width Line” dimension we used the categories “Exclusive” and “Many”.
“Exclusive” refers to the companies that only sell music CD’s. “Many” refers to the
companies that not only sell music CD’s but also DVD’s, books, ect.
       Product Width
           Line

                                  High Mobility Barriers
  Exclusive            CD Now                              Tower Records
                                  Low Mobility Barriers    Wherehouse Music
                                                           Sam Goody
                                                           Blockbuster Music

                                            High MBs
       Many            Amazon.Com                          Barns & Nobel
                                                           Borders
                                             Low MBs

                                                                           Distribution
                       Shipping                               Retail         Method

Key Player: CD.Com
Competitors: Amazon.com, Tower Records, Wherehouse Music, Sam Goody,
Blockbuster Music, Barns & Nobel, Borders, any other company that also sells music
CDs.

								
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