Porter's 5 Forces

Michael E Porter Born

in 1947

Graduated

from Princeton

University in 1969 MBA

from Harvard Business School-

1971 Ph.D

in Business Economics- Harvard University 

Michael Porter's Five Forces Model in context of Luxor Writing Instruments Ltd

Mr. D.K Jain The chairperson of Luxor Writing Instruments Ltd up with an idea of launching Felt Tipped Pens in India in the Year 1963. Despite of being pioneers, Luxor could not maintain its supremacy in the industry.

Threat of Substitute Products:

Due to the existence of close substitutes the propensity of customers to switch to alternatives in response to price increases:  Buyer Propensity to Substitute  Relative price performance of substitutes  Buyer switching costs  Current trends In the year 1996, ADD Corporation Ltd came up with the launch of Gel pens in the Indian market.  The company made a deal with 'OHTO' of Japan to provide technology for manufacturing Gel Pens which were launched at Rs. 20/- under the brand name 'ADD'. A premium quality product assuring a smooth writing positioned itself as a substitute to both the pilot pens and the other low-end ball pens priced between Rs 4/- to Rs. 6/.

Threat of entry of new competitors: Profitable markets will attract new entrants, which will effectively decrease profitability:  The existence of barriers to entry (patents, rights etc)  Learning curve advantage  Legislation and government policies  Huge capital requirements  Access to distribution  Entry of brands like: Cello, ADD Gel, Montex, Renolds and Linc pens in the industry.  Smaller players such as Lexi, Agni and Elkos for examples have also been able to maintain their share on a regional or select pocket level.

Key barriers to entry:     

Economies of scale Capital / investment requirements Customer switching costs Access to industry distribution channels The likelihood of retaliation from existing industry players.

 Inability of luxor to prevent entry of competitors like cello, led to sharing of the market with such new players cello entered in 1994. with just one model of clear pens. From the modest production of 20 Lakh pens per month, CWICL today produces 500 lac pens per month. The production of Luxor on the other hand relies to a great extent on the Job work from external Vendors or Ancillary Units

Bargaining Power of Suppliers: If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive, it could happen due to:  There are many buyers and few dominant suppliers  There are undifferentiated, highly valued products.  Suppliers threaten to integrate forward into the industry As far as suppliers are concerned, Luxor Writing instruments Ltd possesses an advantage as there large number of suppliers in the India and overseas which cater to Luxor’s requirement of raw materials.

Bargaining Power of Consumers:

The bargaining power of buyers is greater when:  There are few dominant buyers and many sellers in the industry.  Products are standardized.  Buyers threaten to integrate backward into the industry.  Suppliers do not threaten to integrate forward into the buyer's industry.  

Indian customer especially rural is very much concerned about the price. There is a consistent growth in the writing instruments industry fuelled by competitive pricing and product innovation.

Intensity of Rivalry: The intensity of rivalry between competitors in an industry will depend on:  The structure of competitionFor example- Rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader. 

The structure of industry cost

 The pen market is marked by a fierce bout of competition among brands like Jetter, Reynolds, Cello, Today’s, Add Gel, Rotomac, Flair, Stic and hundreds of small-scale players.  As such, expenditure on media, promotions and celebrity endorsements — pen brands are endorsed by the likes of Amitabh Bachan (Parker) Javed Akhtar, Salman Khan, and Hrithik Roshan (ADD Pens) — is among the highest in the ad industry.

 2. 3. 



Degree of differentiationIndustries where products are commodities (e.g. steel, coal) have greater rivalry; Industries where competitors can differentiate their products have less rivalry. Switching costs – Rivalry is reduced where buyers have high switching costs - there is a significant cost associated with the decision to buy a product from an alternative supplier. Strategic Objectives – when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less.

 According to analysts, LWIPL lagged behind in tapping the full potential in certain categories. For example, in the ball point pen category that contributed to around 50% of the total sales in the pen industry, LWIPL had just 5% share.  Moreover, in the fast growing gel pens segment, the company had negligible presence.