INDUSTRY ANALYSIS- 5 FORCES MODELTV

TV

Michael Porter’s Five Forces Model provides a robust and time-

tested framework for
analysing any industry, reflected in the strength of the five forces
(industry
competitors, potential entrants, threat of substitutes, power of
buyers and power ofsuppliers). The collective strength of the five
forces determines the ultimate profit and potential in an industry,
Where profit is measured in terms of long-term returns on capital
invested. The elements of each of the above forces and the
extent and /or effect of each element in the context of the
television industry have been analysed and enumerated below.
The Porter’s Five Forces tool is a simple but powerful tool for
understanding where power lies in a business situation. This is
useful, because it helps you understand both the strength of your
current competitive position, and the strength of a position you’re
looking to move into. With a clear understanding of where power
lies, you can take
fair advantage of a situation of strength, improve a situation of
weakness, and avoid taking wrong steps. This makes it an
important part of your planning toolkit. Conventionally, the tool is
used to identify whether new products, services or businesses
have the potential to be profitable. However it can be very
illuminating when used to understand the balance of power in
other situations.
PORTERS 5 FORCES MODEL
1. COMPETATIVE RIVALRY AMONG INDUSTRY (VERY HIGH)
2. BARGAINING POWER OF BUYER (VERY HIGH)
3. BARGAINING POWER OF SUPPLIER (LOW)
4. BARRIER TO ENTRY (LOW)
5. THREATS OF SUBSTITUTES (LOW)

3.1 Degree of Rivalry

Degree of rivalry denotes the intensity of competition within the industry.

Videocon,
LG, samsung, Sony, Onida, are the big competitors in television industry.
Although
Videocon, another major player has managed to hold its own in the midst of
the
onslaught from the Korean majors, though profits have suffered. Other large
Indian
companies in the top of the list are Mirc Electronics. While Mirc Electronics is
managing to hold its share by adopting value for money strategy, BPL is
facing tough
time, experiencing drastic decline in market share. Sony, Philips, Akai,
Sansui, Aiwa,
Toshiba and now Hyundai are the other foreign brands in the market. The
industry is
based on numbers game and companies will have to maintain a fine balance
between
catering to lifestyle requirements and meeting the needs of average
consumer.

3.1.1 Competitor Analysis

A detailed analysis of some of the major players is done below:

LG ELECTRONICS
LG Electronics rightly understood the consumer motivations to create
magnetic
products, price them strategically, position them sharply and keep making
the
magnetism more potent. Having understood the finer differences in
consumer
motivations, it opted for sharp- arrow ‘reasons-to-buy’ differentiation over
the
‘blanket-all approach’ taken by most of the other players. It is an aggressive
marketer. It focuses on low and medium price products.

SAMSUNG
Initially the strategy of Samsung in India was to create premium image by
emphasising global brand. After facing stiff competition from another Korean
major-
LG, Samsung also started playing price game. In 2004 it reverted back to its
premium
positioning, although it resulted in some loss of market share. In line with the
Global
Digital Initiative of the Parent Company, Samsung India is seeking to acquire
digital
leadership in India by introducing its digital ready televisions like the 40" LCD
Projection TV, 43" Projection TV and the Plano series of Flat Colour
televisions.

ONIDA
Its popular devil ad although had engendered a strong emotional pull
towards the
brand, technologically it represented no advancement. The company
plugged the gap
by touting its digital technology. Like Videocon, it has also been able to hold
its
market share. The world-class quality of Onida has enabled the company to
make a
breakthrough on the export front. It has technical tie- up with the Japan
Victor
Company, better known as JVC. So focused is Onida on positioning itself on
the
premium, high- tech plank that it is even planning to push its own envelope
on
obsolescence, much. The strategy is aimed at further broad basing the
product
offering of the company, which has largely dominated the top-end of the
television
market, across multiple market segments.

VIDEOCON
Videocon has always been a price player and has an image of a low price
brand. This
entails providing more features at a given price vis-à-vis competitors. It has
taken
over multinational brands to cater to unserved segments, like Sansui- to
flank the
flagship brand Videocon in the low to mid priced segment, essentially to fight
against
brands like BPL, Philips, Onida and taken over Akai- tail end brand for brands
like
Aiwa.
Videocon is one of the largest manufacturers of television and its
components in
India and thus has advantages of economies of scale and low cost due to
indigenisation. It has the widest distribution network in India with more than
5000
dealers in the major cities. It also has a strong base in the semi-urban and
rural
markets. Due to its multi-brand strategy, it has at present multiple brands at
the same
price point. This has led to a state of diffused positioning for its brands. It has
also led
to a cannibalisation of sales among these brands. The flagship brand
Videocon has
lost market share due to the presence of Sansui in the same segment.
Because of
reduction in import duties on CPT the cost advantage of Videocon is also on
the
decline. Hence it is facing rough weather and also trying to boost exports.
.
3.2 The threat of potential new entrants (low)
High capital required entering into television industry, which needed large
investment
on technology, distribution, service outlets and plant. Difficulty for customers
in
switching cost, when they are satisfied with their current product as well as
difficultly
for new entrants to have product differentiation because customers had
already
familiar with those established consumer electronics companies, therefore
new
entrants have to spend a lot on branding and customer knowledge. It is
difficult to
obtain a license; successful applicant has to undergo through a form of
competitive
evaluation, such as a comparative evaluation process.
Threat of entry is determined by the entry barriers, which act to prevent new
firms
from entering the industry. A lower entry barrier makes it difficult for the
existing
producers to remain profitable for long. When profits increase, additional
firms will
enter the market to take advantage of the high profit levels and over time
drive down
profits of all firms in the industry. When profits decrease, some firms will exit
the
market, thus restoring the market equilibrium. Barriers to entry arise from
several
sources:

3.2.1 Access to Distribution Channels

A strong distribution network is absolutely essential to compete in this
industry. Not
only does it guarantee a country wide reach for a company’s products but is
also
necessary for providing good after sales service.

Videocon has implemented ERP system, which helps in integrating the

manufacturing, marketing, procurement and distribution services with the
corporate
office LG Electronics sells in 1800 towns and cities with a population of
1,00,000 and
above.
Samsung also has a widespread service network, which includes 123
exclusive
service centres and 200 distributors in any town with more than 1 lakh
population.
All BPL dealers are linked via VSAT nodes, ensuring online availability of
information on inventory status and sales movement.
Distribution hence is difficult and costly as established firms dominate
distribution.
Large incentives are required to gain entry into the distribution channels and
further
gain recommendation to retailers from the dealers.

3.2.2 Brand Salience

With little product differentiation and parity products, it is imperative that
distinct
images are created in the minds of consumers through positioning and brand
building.
MNCs have been able to compress the cost of brand building by amortising
the cost
of sponsoring international events across a larger footprint straddling
multiple
countries.

3.2.3 Capital Investment and Economies of Scale

Television industry is capital intensive and players have made huge
investments
in putting up state of the art manufacturing facilities. Videocon has seven
manufacturing site in India Sony India had a production capacity of 300,000
CTV
sets with capacity utilisation of 66%. Samsung is investing $4 mn to expand
its CTV
manufacturing capacity at Noida to 800,000 units per year. The existing
capacity of
the plant is around 600,000 units. Other players like Mirc Electronics, LG
have also
set up manufacturing facilities in India. The market players need sales
volume to
achieve economies of scale, which is difficult because of large number of
competitors. Apart from investments in manufacturing the industry requires
huge
working capital to manage inventories.
Supply chain mgmt. and inventory management thus becoming crucial
toDetermining
profitability. With regard to sourcing funds, MNCs are better placed Than
their
Indian counterparts as they manage to get funds from their parent
Companies at low
rates of interest. Huge capital requirement thus can act as barrierto entry.
3.3 Threat of Substitutes goods (low)
In Porter’s model, substitute products refer to products in other
industries.there is few
substitutes from other industry if any. Most of them seem to be obsolete or
have one
foot out of door. Internet though emerging as an infotainment medium is
very low in
penetration. Moreover the industry has responded to the future threat by
introducing a
TV that can provide functions of the Internet along with regular features,
e.g., BPL
digital that includes Internet and cellular facilities.

3.4 bargaining power of Buyer (high)

The power of buyers is the impact that consumers can have on a producing
industry.
Buyer power influences the prices that a firm can charge. Buyer power is
influenced
by various factors as follows:

3.4.1 Buyer Concentration

The industry is akin to consumer durables whose end users are fragmented.
Hence
buyers do not have any specific influence on producers.

3.4.2 Buyer Switching Cost

The cost incurred by consumer in switching from one television brand to
another is
practically zero. Brand loyalty is low. Hence the companies cannot rest on
their
laurels and have to be on their tenterhooks to retain the customers.

3.4.3 Price Sensitivity

Market is highly price conscious and promotion driven. With the onslaught of
VIDEOCON’s major price cuts and promotional schemes, this market has now
become
a promotion driven one. To successfully compete in this industry, even
premium
players like Sony, LG have had to come up with schemes. LG and Philips
have

Been the most aggressive amongst industry leaders as far as pricing is

Concerned and hence their realisation shave been lower than industry
average.
Industry leaders like LG focus on low- medium priced CTV, while Samsung
has
Moved gradually towards higher priced CTVs. The domestic high-end
CTV prices will follow the global price trend of declining prices. However, the
Prices of domestic products would be higher than those of global products
due
To negligible demand in the domestic market and hence most likely to be
met
Through imports. market is highly price sensitive as the
Demand has increased with fall in prices.

3.5 Bargaining power of supplier (low)

In television industry, there is low bargaing power of Supplier’s because big
global
supply chain management.there is direct negotation with supplier in order to
encourge
reliable supply, faster delivery and lower price. Bargaining power influences
the cost
and quality of input material. Higher supplier power raises the input cost,
thereby
reducing the industry profitability. The most critical component in
manufacturing
television is the picture tube. It constitutes around 50% of the cost of
television.
While Black and White picture tubes are made in India, many manufacturers
still
need to import colour picture tubes.
The other important components include electronic circuit boards, tuners,
hightension
transformers and moulded plastic casings. The demand
For colour picture tubes (CPT) has been rising steadily. But at the same time
owing
To customs and import liberalisation, they had to face competition from
imports
During1993-1997. A sharp reduction in import duty from 85% to 40%
between
1994-96 and further down to 20% by 2004 was announced to gear the
manufacturers
of picture tubes to face competition from foreign players. As a result of spurt
in
Demand in 1990s, the CPT manufacturers expanded capacities, which
resulted in
Excess capacity in the domestic market. Samtel Colour, LG Hotline and JCT
Electronics are the major domestic CPT manufacturers The picture tube
industry is
both technology and capital-intensive industry.
At the same time bulk orders in raw material procurement fetch more
discounts,
which gives the larger players an advantage over their smaller counterparts.
The CPT,
the most critical component in a CTV has no alternate use and therefore, the
CPT
industry is solely dependent on CTV players, mainly domestic and partly
exports.
Hence larger players like LG, Samsung and Mirc etc. are able to negotiate
better
deals unlike other players.

3.6. CONCLUSION
So as we are new in market with all types of tv model

The variables affecting the industry with regard to each of the five forces
have been
Categorized as favourable or adverse. Favourable variables have the
potential to
improve profitability, while adverse variables reduce profitability of the
industry.
Some strategic initiatives, which could be adopted to leverage the favourable
forces
And protect themselves from the adverse ones, are as follows:

• R&D and Marketing will have to work closely together. R&D will have to
play a
role in cost innovation, which can cut component cost and raise
performance. The
number of defectives has to be reduced at negligible levels. The quest
should be to do
even better. Each assembly line can be made to compete with the other.

• Vital to the spread out is the re-haul of distribution network. Home

appliances have
necessitated separate dealers, many of them specialists. For sharper focus
on all
categories individually, the market has to be opened wider.
• Brand building will be important, so as to ensure brand preference.
Marketers will
have to strategise to pull the consumer up the value escalator. A good
fraction of sales
if come from high margin products as flat TVs and projection TVs would
improve
profitability of companies. Sharply differentiated products with effective
communication on a continuous basis would be the key for future. Challenge
lies in
creating higher order universal benefits and sensitising the larger audiences
to it.

• Buyers are easily swayed by costs, which are also verified by the presence
of large
number of product offerings. Focus would be on providing value for money to
the
consumer, with more brands in the economy segment. The challenge before
marketers is to span out, and address a wider set of needs. They will have to
identify
segments not addressed by them so far and also introduce low price-point
products
aimed at rural markets.

• Besides catering to the cost conscious segment, marketers need to

segment the
market on the basis of psychographics, which will help in inducing brand
loyalty
through lifestyle and experiential marketing.

• The increase in disposable incomes, more number of households above the

threshold income, declining prices, shortened replacement cycle and the
demand for
multiple TV, all these factors are expected to sustain the growth momentum
at 10-12
per cent during 2008-09 to 2010-11.
GROUP MEMBERS ARE

NIRAJ (38)

SAGAR JAGAN RAJGURU(50)

ASHISH PANDE(40)