Blackmores - A Strategic Analysis (Part 2)

Porter’s Five Forces Analysis

The intensity of rivalry among competitors in the industry:

• The industry structure is mainly that of monopolistic competition, with multiple firms competing for the consumer’s dollar. In the supermarket, 4-6 brands can be found selling relatively homogenous products.
  
• The high industry growth should help offset battle for market share, as competitors don’t need to steal one another’s customers. Market growth is increasing due to recent pushes towards complementary healthcare, for instance the work of the Complementary Healthcare Association lobbying the government and surveys undertaken by industry help to spread awareness of complementary healthcare among the aging baby-boomer population.
  
• The impact of regulatory bodies. E.g. if the Therapeutics Goods Administration tightens quality constraints, may erode profit margins of smaller firms, lead to push for economies of scale
  
• There are low switching costs between brands for consumers, though the Pan Pharmaceuticals debacle highlighted the importance of strong brand equity to maintain customer patronage. Also, if the healthcare products are viewed as commodities, buyers will focus upon price and service as their differentiators.
  

One of the biggest competitors to Blackmores continues to be lower priced alternative complementary medicines. Bio-Organics and Herron are two brands that are competing directly with Blackmores and given their lower price products are sharing much of the market share with Blackmores. Additionally, there are added incentives to purchase Guardian products, such as Guardian loyalty cards. These factors help to boost Guardian owned products. Therefore, a possible improvement in the future for Blackmores is to introduce a loyalty scheme that will help retain their customers.

The bargaining power of buyers:

• Bargaining power of buyers is moderate to weak.
  
• Many buyers mostly accounting for a small proportion of total sales. The complementary healthcare industry utilizes 3 major distribution channels - Chemists, grocery stores and healthcare stores to access a wide range of consumers who generally all purchase relatively low volumes (ASMI, 2006).
  
• Blackmores has sought to differentiate its product via a quality focus and some competitors have a cost-focus. This Differentiation strategy helps to develop brand loyalty and is aimed at nullifying the impact of higher prices on consumer demand.
  
• No real threat of backward integration – given the diversity of customers.
  
• The customers are end-users, so there are no resale issues
  
• The absence of any real switching costs favorably influences buyer power, as it allows dissatisfied customers to change readily within the healthcare brands. Again, the focus on brand image and service helps to offset this lack of switching costs.
  
• The retail stores and distributors, however, have some bargaining power because they are able to influence the amount of shelf space given to Blackmores. However, Blackmores has a good working relationship with distributors and has a good share of shelf space amongst retail outlets.

The bargaining power of suppliers

• Generally quite weak, as there are many supplier companies selling relatively homogenous raw materials and commodity products – price, quality and service are the only real differentiators.
  
• That said, suppliers don’t need to contend with substitute products, except for advances made in specific healthcare products.
  
• The industry is a very important customer of the supplier group (Industry worth more than $1billion). It is a growth industry that suppliers would want to remain on good terms with.
  
• Supplier products are vital to the industry’s business, which gives them some power over the industry. However the push for quality and the high number of suppliers means it is difficult for them to utilize this as leverage.
  
• No real switching costs between suppliers, only real logistical issues. So again industry has the power to shop between suppliers.
  
• Suppliers do not pose much of a threat of forward integration – they manage a diverse portfolio of clients so it is unlikely to be cost effective to develop them within the niche healthcare industry. Furthermore, it would be difficult produce the diverse raw-inputs that are necessary to manufacture healthcare products.
  

Threat of Substitute Products

• Synthetic medicines prescribed by professional doctors act as a substitute for the natural medication that Blackmores sells. However, the trend suggests a growingacceptance of natural healthcare products, such as those produced byBlackmores.
  
• Within the Asian markets that it is competing in, Blackmores will face intense competition from companies selling traditional Chinese medicines (e.g. Eu Yan Sang). Blackmores will have to work around cultural preferences for these products in countries like Taiwan, Hong Kong and Singapore.

Threat from Potential Entrants into the Industry

• No major legal barriers to enter the market
  
• Few secrets to manufacturing of health supplements
  
• Main barriers to entry are the existing supplier/buyer relationships, and the brand name and reputation of Blackmores.
  
• Threat of entry by global multi-level marketing firms (e.g. Amway, Nu Skin, Unicity) which often sell nutraceutical supplements
  
• Another threat that could possibly undermine the success of Blackmores in Australia is the potential arrival of an international company with intact infrastructure taking over local businesses in Australia. Already there is an abundance of companies competing for a segment in the complementary pharmaceutical industry and therefore separating oneself from the rest is an issue Blackmores must attend to.