Consider the following quote based on the firm Rubbermaid.
Rubbermaid has experienced major increases in the cost of resin (an important raw material... ) and attempted to pass on these costs with large price increases to its customers. Wal-Mart was particularly angered by the large price increases... Wal-Mart refused to stock a number of Rubbermaid products and deleted Rubbermaid's products from its promotional materials... Instead, Wal-Mart featured Sterilite, one of Rubbermaid's prominent new competitors... When Rubbermaid passed on the huge price increases to its customers, the competitors had only small price increases, deciding instead to reduce their profits rather than pass on the full cost of the raw materials.
The quote illustrates three of Porter's five forces. Which three? How does it illustrate each of them?
First I believe it is important to recognize what are Porter's five forces and what each means:
1. The threat of new entrants into the market; or more simply put the threat of new competition.
If you have a profitable market that will provide your organization with high returns this will attract new organizations. This new competition will eventually decrease the profitability for everyone in that market.
a) What this says for the Wal-Mart/Rubbermaid dilemma is this first force is not an example since with the cost of resin up right now the threat of new entrants into the market is not likely or at least not likely at this time.
2. The threat of substitute products or services is the second of Porter's five forces. This is the existence of products that are outside of the realm of the common product boundaries that can increase the inclination of a consumer to change products. Now understand this does not mean switching to a competitor with a similar product ...
Were any of Porters five forces utilized by Walmart when faced with a cost increase dilema of Rubbermaid products? This solution gives examples and explains Porters five forces.