The bargaining power of buyers is very high in the beer industry. Consumers have many choices, spanning from other alcoholic beverages to other brands of beer, including smaller labels as well as the major brands. Also, beer is not strictly a necessity. Consumers can conceivably 'do without' if the price is too high.
Bargaining power of suppliers
The bargaining power of suppliers is also very high in the beer industry. Beer companies are critically dependent upon obtaining specific input goods to create their brews. They need a high volume of input goods to produce their product, and they need a timely and steady supply. Good relationships with bottlers and distributors are also required to take the product to market.
Competitive rivalry is extremely high. All of the major beer brands are fighting to brand themselves as unique because of the relative homogeneity and interchangeability of many of the major brands. Smaller brewers must justify their higher prices to consumers based upon their quality and taste. It is very difficult to establish a form of branding that makes a beer 'stand out.' Globally, the market is even more competitive, given the dominance of favored local brands in beer-drinking countries.
Threat of substitutes
There are many substitutes of other alcoholic beverages, spanning from hard spirits to wine coolers. For casual occasions, some consumers may be satisfied with soft drinks or water as a default option.
Threat of new competitors
While it would be difficult for a company to generate a new beer to rival Budweiser or Miller very rapidly, smaller brands have arisen that offer an additional value as artisan producers. Also, more national and regional brands are 'going global.'
Overall, the beer industry as a whole is not particularly attractive to enter. Like many food-related industries, it is intensely competitive, with high input costs, potentially unreliable suppliers and fickle customers.
Q1b. Interbrew's desire to create a global brand does make sense, given the worldwide popularity of beer. Beer is consumed in a wide range of European countries, as well in America and Australia. Producing on an economy of scale could increase profits.
Q2c. Stella Artois is a pleasing, relatively unassuming beer with a taste that is likely to be palatable amongst a wide range of different types of beer drinkers. It is not dark or hoppy, and it has an image that can be crafted to seem either luxurious or laddish. It is thus well-suited to be the company's flagship brand.
Q3d. The great strength of focusing on cities rather than nations in marketing beer is that quite often patterns of consumption are very different in rural vs. urban areas. While in less densely-populated areas, beer is often consumed at home, in cities it is often consumed in pubs and bars. Consumers may be more attracted to different types of promotions in urban locations. Also, given the different character of consumer tastes, the beer might be more likely to be popular in an urban, very trendy location in one country, but not in another country where beer is consumed more in rural areas. Focusing on cities allows Stella Artois to be branded as a uniquely urban brand, giving it a distinct character. The company can focus on nations where beer is often consumed in cities and target these densely-populated areas. The downside, of course, is abandoning a potentially lucrative rural or suburban market. There is also a risk of spreading resources too thinly between cities, without focusing on one or two nations for the global expansion.
Q2. U.S. analysis
Trend 1: Depending on which candidate wins the 2012 election, a greater percentage of the American public will likely have to have some form of health insurance. There will be an expanded market in this particular segment of the industry. The health insurance industry has, for obvious reasons, been opposed to a 'single payer' government-provided health insurance plan, but requiring consumers to buy insurance would actually be helpful for the industry.
Trend 2: The insurance industry was implicated in the credit crisis of 2008 because of its refusal to adequately screen the potential risks posed by the subprime mortgage market. "AIG while providing insurance for credit default swaps didn't check the creditworthiness of loan/borrowers. As the subprime home loan borrowers were of low credit worthiness, the risk was high in such loans" (Sinha & Ahmad 2009: 186). Under normal circumstances in a large risk pool, a sufficiently diverse portfolio guards against potential losses but in the case of AIG, its reliance upon subprime mortgage bundles left it extremely vulnerable. This has given rise to calls for greater regulation of the industry.
Trend 1: The U.S. economy is beginning to recover, but in a rather halting fashion. Job security is still extremely low. On one hand, this might make some older Americans willing to buy life insurance to support their families. On the other hand, many people may not have the money to buy insurance -- not simply life insurance, but nothing beyond the bare minimum in home, car, and other forms of insurance. Customers are likely to be very bargain-sensitive if they are worried that they may lose their jobs in the near future, or that the economy is likely to worsen. As well as a downturn in demand amongst consumers, claims tend to go up during unsteady economies from banks when lenders default on their loans and consumers, short on funds, may be more vigilant in pursuing claims (Sinha & Ahmad 2009: 186). "To generate top-line growth and widen profit margins, insurers will need to consider expanding their menu of products, services and distribution channels, while simultaneously reducing costs and improving operational efficiency" (U.S. life insurance outlook, 2011, Ernst & Young).
Trend 2: Although jobs have not rebounded, in the financial market, the prospects are far brighter. The market for financial insurance is likely to grow, although, given the still-stinging memory of the credit crisis fallout, the insurance industry must demand greater transparency of financial institutions regarding 'bundled' securities. "Low interest rate conditions compound these problems, challenging life and annuity insurers to generate competitive product returns" (U.S. life insurance outlook, 2011, Ernst & Young).
Trend 1: The United States is a very technologically-focused nation. Connecting through mobile technology and the Internet is essential. Any firm in the U.S. must have the capacity to leverage the Internet. Customers will want to access their insurance accounts online and over their phones in a safe and secure manner.
Trend 2: There have been a number of well-publicized disasters, such as hurricanes, which may make consumers more motivated to expand their insurance coverage. The industry can seek to capitalize upon these fears.
Q3a. What is a "strategic group," according to Porter?
Porter defines a strategic group as a group of companies within the same industry that have similar business models. For example, they might both be bargain-oriented, low-cost sportswear firms, versus firms that purvey highly specialized niche merchandise that only sell running gear.
Q3b. Why is this concept important and how is it used in conjunction with "mobility barriers?"
Companies in different segments of the industry do not necessarily compete directly with one another, and it is very difficult for a company to enter other industry segments, unless it is extremely large, agile, and has access to a wide array of resources. There are barriers to exit and enter certain markets within an industry, not simply within and without (Carter & Porter 1977). For example, it would be very difficult for McDonald's to sell a truly high-quality, customized burger on par with the smaller, niche burger chains such as the Shake Shack and In-And-Out. Q3c. Provide a strategic map of any industry, a rationale for the axes, and what they tell you about the structure of industry competition.
Fast food industry
Price High Starbucks
Price Low Generic Niche markets
Although the fast food industry is a relatively low-cost market, there is a wide range of prices within the industry, even between some of the major brands. In any marketplace, a product can stylize itself as either a low-cost or a high-cost item. Starbucks, with its three dollar lattes and pastries, specifically promotes itself as an 'affordable luxury.' Although it is not as costly as going to a gourmet independent chain, compared with coffee a consumer can make at home or purchase at a cheaper rival such as Wawa or Dunkin Donuts, Starbucks is relatively high-priced. Starbucks is also very much a 'niche' market in terms of fast food. It sells a limited range of food products and customers that patronize Starbucks must care about coffee to some degree. Its hot options have not been successful in most markets, and consumers come to Starbucks with the intention of drinking coffee rather than eating. It is also suitable for only a limited array of meals and light snacks.…
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