Porter’s five forces analysis of Masafi Water Company in UAE
Porter’s five forces analysis were developed by one Michael E Porter in 1979 (Hill, 2010). He developed this as a framework that could be used to evaluate and assess a company or organization’s competitive strength and position. Porter’s five forces of competitive analysis is based on his assertion that there are five forces that are used to determine an organization’s attractiveness to its target market and the intensity or level of its competitiveness. This approach first of all gauges whether or not the organization in question possesses all of the five forces in Porter’s framework and the level of intensity of each organization. Analysing these forces reveals the organization’s strengths and weaknesses based on the level of intensity or lack thereof in each force.
The company under analysis in this case is Masafi waters, a water bottling company in the United Arab Emirates. Masafi Waters bottles natural mineral water and delivers it through their delivery points in Dubai. Porter’s five forces analysis is especially useful during the launch of a new product as it is used to analyse the product’s potential profitability in the short and long run. It is also used to identify a company’s strength in order to grow the strong area and to identify a company’s weakness so as to improve it. They say an organization is only as strong as its weakest link and Porter’s five forces analysis can help an organization pin point its weak points so that it can work towards strengthening them.
The first force under Porter’s framework is supplier power. This usually analyses the suppliers’ power especially to affect prices and to what extent they can drive prices up. The suppliers’ power is affected by a lot of factors including the number of suppliers, the cost of switching the company’s main suppliers, the nature of the product. When a product is unique and on demand, the organization usually has a better hand in determining the prices, even the ones set by their company they supply to. Water, especially clean natural water is not really hard to find and suppliers offering the materials needed are many. The suppliers therefore do not have much power especially to drive up prices and in the case of Masafi waters their suppliers do not have much power over pricing. This is because the cost of switching from one supplier to another is relatively small or negligible and there are many suppliers too. Therefore the organization in relation to this force is strong because their supplies pricing is a bit stable.
The second force under Porter’s framework is buyer’s power. This force determines how easily buyers can cause the prices of an organization’s product to drop. Usually this is determined by the number of buyers that an organization has, the nature of the product, the cost of a buyer’s switch from one supplier to another, the importance or effect of one buyer to the company and the necessity or importance of the product to buyers. Usually when the buyers are many and when they purchase a good very often, the effect of change of one buyer or a few buyers to other suppliers may not be felt. However, when the buyers are few, and the effect of a buyer’s action is significantly felt by the company then they are able to determine pricing.
In the case of Masafi waters, the buyer power is not so strong but neither is it weak. With proper selling strategy and assurance of good quality, buyer power can be contained. However, seeing as the product Masafi water sells is mainly water among other products, the organization can always count on having a significant number of buyers. This is because, water is consumed every day, in fact numerous times a day, and even though there may be many suppliers, there’s also a constant need in the market for the product. The effect of one buyer or a few buyers is not felt strongly by the organization and for there to be a significant effect on the organization a large number of buyers would have to move. In this regard, Masafi waters is strong under this force.
The third force is competitive rivalry which is usually determined by the number and influence of an organization’s competitors in the market. Usually when the competitors are too many, and they offer the same product in different packaging, the organization becomes less attractive to the public and it makes it that much easier for their buyers to move. In this regard Masafi water has got a lot of competition. Because of this, competition with better differentiated product could affect the organization’s market share if they priced their product lower that Masafi water. This is because, the nature of the product supplied by Masafi waters is such that, if they cannot convince the buyers of their uniqueness, buyers can easily switch suppliers who price their goods lower because they figure they will pay less for the same product. Therefore in this regard, Masafo waters is weak and needs to work towards better differentiation and more value added approaches to their sales.
The fourth force, threat of substitution is determined by how readily available substitution for a certain product is. In the case of Masafi waters, substitutes are readily available and the organization is also not very strong in this force. Water can be substituted for tap water, other drinks or water from other bottlers. Again, the company would have to work really hard at differentiating their product better and advertising more in order to attract a loyal clientele. They also need to ensure they offer better quality and add other value added services to their sales.
The fifth force is the threat of entry which is determined by the industry’s level of barrier to entry and how easily the product can be manufactured. In the case of water bottling, there are a few organizations that have made quite a mark for themselves in the industry but it takes a lot of hard work to claim a constant and loyal market share. Barrier to entry for water bottling is not really that strong. There are very many water bottlers and the industry is open for any more who would like to join this industry. Masafi waters in this regard cannot boast much strength as they face competition not only from existing water bottling firms but also from new entrants. This analysis can help Masafi waters develop competitive strategy in light of their strengths or weaknesses in the face of the five forces. That said, they still have a pretty good chance of claiming a sizeable market share because their product is a necessity.
Hill, C. W. L., & Jones, G. R. (2010). Strategic management theory: An integrated approach. Boston, MA: Houghton Mifflin.