Five Force Analysis on Havmor

Porter's five forces analysis is a framework for industry analysis and business strategy

development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon

industrial organization (IO) economics to derive five forces that determine the competitive

intensity and therefore attractiveness of a market.

Porter's five forces include - three forces from 'horizontal' competition: threat of substitute

products, the threat of established rivals, and the threat of new entrants; and two forces from

'vertical' competition: the bargaining power of suppliers and the bargaining power of

customers.This five forces analysis, is just one part of the complete Porter strategic models.

The other elements are the value chain and the generic strategies.

Porter's five forces is based on the Structure-Conduct-Performance paradigm in industrial

organizational economics. It has been applied to a diverse range of problems, from helping

businesses become more profitable to helping governments stabilize industries.

Buyer Power

Buyer power is determined by various factors such as switching costs, the relative

volume of purchases, the standardization of the product, elasticity of demand, brand

identity, and quality of the products.

On one end are the large institutional buyers i.e. big hotels and restaurants which

ask for discounts, extended credit periods and the other end are small retail outlets

like general stores which have no power to negotiate with the firms.

The power of buyers is relatively high when buyers are large, consisting of individual

customers, grocery stores, convenience stores, and restaurants nationwide. Since

retailers purchase ice cream products in large quantities, this gives buyers substantial

leverage over price.

Customers are able to substitute one brand of ice cream to another at any point in

time. There are many ice cream products to choose from, so the buyer’s cost of 

switching to competing brands is relatively low.

Havmor’s strategy must include strong product differentiation so that buyers are less

able to switch over without incurring large costs. Havmor upholds a strong brand

identity in the Gujarat (Ahmedabad) market. It is perceived as having more

innovative flavors in every three months and also having a higher quality. Thus, it is a

strong point of differentiation.

Supplier Power The suppliers to the ice cream industry include dairy farmers, paper container

manufacturers, and suppliers of various flavorings.

Factors affecting the bargaining power of suppliers include the threat of forward

integration and the concentration of suppliers. There exist numerous potential

suppliers of ingredients. The ingredients provided by each supplier are not unique or

greatly differentiated. Furthermore, ice cream manufacturers are able to switch

between suppliers quickly and cheaply. Also, many of the suppliers viability is tied to the

well-being of large, established companies. Therefore, the bargaining power of

suppliers of ingredients is rather low.

As Havmor purchases the milk from different farmer societies therefore, a certain

power is vested in the hands of the farmer societies.

Threat of Substitutes

There is no perfect substitute to ice creams because of its nature. However, many substitute

products are available within the dessert and frozen food industry (cookies, pies, cakes,

chocolates, soft drinks) which are basically food items consumed as sweet and which are also

cold and refreshing in nature. Since substitute products are readily available and attractively

priced, the competitive pressures posed by substitute products can be considered moderate.

Threats of New Entrants

Economies of Scale :

Amul and many other players enjoy economies of scale, thus it is difficult for Havmor to match by its

competitors. It is because of this reason that Havmor is a regional company which has not grown or

flourished to a national level.

Cost and Resource advantages :

Products under the brand name ‘Havmor’ has a very good reputation at domestic level. Here, the raw

material procurement is very difficult for the new entrants. Consequently capital requirement is also

high. Still new entrants are emerging such as domestic and international players. So the threats of new

entrants are moderate.

Brand Preferences and Consumer Loyalty:

The barriers to entry within the ice cream industry are moderate due to the brand

preferences and customer loyalty towards the larger and more established companies.

There is an immense level of Brand Preference of Havmor in the minds of the people in Ahmedabad.

Technology:

Inability to match the technology and specialized know-how of firms already in the industry:

The technology used by Havmor is imported from U.S. and Chicago. It is a state of art technology. To

get such technology, a firm would require a huge amount of resources.

Industrial Rivalry:

The principal competitors in the ice cream industry are large, diversified companies

with significantly greater resources such as Amul, Kwality Walls, Vadilal and

CreamBell , besides a lower threat from local manufacturers (kulfi etc.

manufacturers).Rivalry can be characterized as intense, given that numerous

competitors exist, the cost of switching to rival brands is low, and the sales-increasing

tactics employed by other rivals threatens to boosts rival’s unit volume of production.

Also, recently there has been a surge in the number of ice cream parlours (such as

Baskin Robbins, Naturals, Amazo) . The growing popularity of such premium ice

cream parlours providing specialty ice creams will also tend to affect the business of

existing companies.