JOHN RITTER, BHU KUMARESAN, TERESA MAYNARD

Home Appliances Industry Study

Market Definition

The home appliance industry includes a laundry list of products, from washers and dryers, dishwashers, and ovens to garbage disposals, air conditioners, and water heaters

GE must compete on a global level

Competitors

GE is in over 130 countries!

Internal Rivalry

High Seller Concentration Top 20 firms make 90% of the profit

ConsolidationIndustry Growth: 3%

Price Competition

Price information is readily available

Low switching costs

Little brand loyalty

Inelastic demand = .37

Entry

Large upfront investment Land Factory equipment Insurance Licensing

Market Concentration - Number of sellers competing

- Stealing profits from top twenty

Government Regulations- Specific standards may make it difficult

for them to compete.- EPA Energy Star program: companies

manufacture appliances according to strict environmental standards, lowering greenhouse gas emissions, and in return receive the Energy Star label.

Manufacturing Curve- Takes time to develop the leanest

processes - Low foreign labor cost

Substitutes

Immediate Rival - Bosch

Bosch’s 800 Plus dishwasher is “the quietest dishwasher in North America” at 38 dBA and GE has developed a substitute that is just as quiet.

Complements

The housing industry – the two are usually purchased together

Demand for home appliances will increase when the housing market is good and decrease when it falters.

New housing is more often the reason for purchase than a customer simply replacing an old appliance.

Supplier Power

Concentration of Suppliers/Substitutes

Many inputs into appliance manufacturing

Recent shift to more concentrated industries

Fewer, larger firms leads to more power for suppliers

Fewer firms also means fewer substitutes

Importance of Input Materials Appliances made up of 60% steel

Forward Integration and Price Discrimination

Costly upfront investment makes forward integration unlikely

Manufacturers make up a large portion of suppliers’ business

Places some power back in hands of the manufacturers and reduces price discrimination

Buyer Power

Concentration of Buyers

Overall industry sells to individuals, these are “price-takers”

Large retailers have some power due to bulk purchases

Overall market price stays intact

Large Volume Purchases

Discounts are generally given to large purchases

Big purchases give suppliers some “wiggle room” when it comes to pricing

Substitutes/Elasticity

No real substitutes

Demand is inelastic to both price and household income Lawrence Berkeley

National Laboratory

Gives appliance manufacturers flexibility when pricing goods

Backward Integration

Large upfront costs

Large economies of scale and scope

Wide variety of products sold by retailers would make profitability of vertical integration tough

Conclusion

Key factors that affect a firm’s profitability:

Volatility of steel prices

Threat of lower-cost manufacturing

Possibility of capturing expanding consumer markets globally in India and China