Next we want to investigate the competitive environment for Ambro in
the US market. For this, we first conducted an industry analysis according to Porter’s five forces.1
Threat of new entrants
As Ambro is the pioneer in the market, potential new entrants may wait for Ambro to solve out all obstacles before other companies enter the market. Therefore, Ambro indeed has to be prepared for new entrants, who could enter the market with less effort – all the initial problems having been solved. Thus, the level of threat also depends on how soon possible entrants would come to the market.
Substitute products for Ambro would be other convenient meal substitutes, which do not have to be organic if they are still perceived as healthy. Soylent may be seen as one, as well as any readily packaged, easy-to-take along snacks such as sandwiches, drinkable yogurts, fruit, etc. By choosing many of these simultaneously, a full meal can be formed – even though the nutritional value may stay a lot lower. Ambro’s substitutes often offer less pricy options, and with better taste (excluding Soylent). Also, switching costs are low. Thus, threat of substitutes is quite great, and therefore Ambro needs to put a lot of effort in highlighting its advantages: being organic, full-nutritional and of very high nutritional value.
Some suppliers of Ambro – such as those of organic foods - do not depend heavily on the small niche industry for their overall revenues. However, some suppliers may be concentrated on superfoods – thus very niche markets, when their bargaining power is smaller. The power is somewhat increased by the industry’s switching costs – if Ambro needs to switch the supplier, it may have to adjust its production or even get new certificates to prove the quality of the new supplier. Often there are substitutes for the suppliers, and suppliers can also easily threaten to work with possible new entrants (competitors) as well. Therefore, bargaining power of suppliers is average.
Bargaining power of buyers
Ambro (and the whole market) has quite a few buyers in the sense that it serves a niche consumer market. Also, buyers face no switching costs, and thus they have negotiation leverage. However, the target consumers are not overly price sensitive, as the product itself is a premium quality product and the target audience is high-earning. Thus, buyers have a lot of negotiation leverage but are not that price-sensitive. All in all, the bargaining power of buyers is of average level.
Ambro is a premium product without existing direct competitors. However, if one widens the range of existing competitors to cover the non-organic substitutes, the Soylent provides the most similar option at the moment. Therefore our next post will concentrate on analyzing that.
Threat of new entrants
As Ambro is the pioneer in the market, potential new entrants may wait for Ambro to solve out all obstacles before other companies enter the market. Therefore, Ambro indeed has to be prepared for new entrants, who could enter the market with less effort – all the initial problems having been solved. Thus, the level of threat also depends on how soon possible entrants would come to the market.
These new
entrants could be ones diversifying from other markets. That way, these firms could
take use of their existing capabilities and cash flows.
The company of Soylent could provide a potential new entrant. After all, the idea is
highly similar - providing a quick meal solution – and thus Soylent might come
up with an organic version at some point. Soylent has been very successful in
getting funding and thus the business has started to flourish fast. Ambro,
however, is only starting their business and still needs to collect lots of
funding.
The degree
of the threat of entry affects the potential of the whole industry.
The degree of entry barriers can be
somewhat determined by looking at the barriers
of entry that exist. Supply-side economies of scale are high for such a premium product. The price
of the product is relatively high, but with larger production amounts the
prices are likely to fall. Some kind of demand-side
benefits of scale may exist (consumers getting discounts when ordering
more), but this is not as important as on the supply side. Customer switching costs are quite non-existent – being a
consumable product, the product itself can be switched quite immediately. Capital requirements exist to some
degree. However, if potential new entrants came from already existing
companies, these companies could possess enough of capital needed as they are. Incumbency advantages independent of size
are quite low – unless Ambro succeeds in creating high enough brand equity. This
has been seen with other food products as well – even if similar products, the
ones with the highest brand equity seem to prevail (e.g. CocaCola vs. Pepsi).
If using internet as the distribution channel, the access to distribution channels creates
no barrier of entry. However, if Ambro is able to get the product into large online
stores, they may get exclusive contracts which would increase the barrier of
entry. Restrictive government policies
are quite limited. Naturally, patents restrict making a copy of the existing
product and there are some safety regulations to be filled, but otherwise no
high barriers.
All in all,
it is quite easy for new entrants to enter the market - Ambro will definitely face competition. Thus, a lot lies in
Ambro’s ability to build strong brand equity. Also, Ambro will perhaps need to place their prices down to deter
competitors – which is difficult at this starting point of business.
Threat of substitute products or servicesSubstitute products for Ambro would be other convenient meal substitutes, which do not have to be organic if they are still perceived as healthy. Soylent may be seen as one, as well as any readily packaged, easy-to-take along snacks such as sandwiches, drinkable yogurts, fruit, etc. By choosing many of these simultaneously, a full meal can be formed – even though the nutritional value may stay a lot lower. Ambro’s substitutes often offer less pricy options, and with better taste (excluding Soylent). Also, switching costs are low. Thus, threat of substitutes is quite great, and therefore Ambro needs to put a lot of effort in highlighting its advantages: being organic, full-nutritional and of very high nutritional value.
Bargaining power of suppliers
Some suppliers of Ambro – such as those of organic foods - do not depend heavily on the small niche industry for their overall revenues. However, some suppliers may be concentrated on superfoods – thus very niche markets, when their bargaining power is smaller. The power is somewhat increased by the industry’s switching costs – if Ambro needs to switch the supplier, it may have to adjust its production or even get new certificates to prove the quality of the new supplier. Often there are substitutes for the suppliers, and suppliers can also easily threaten to work with possible new entrants (competitors) as well. Therefore, bargaining power of suppliers is average.
Ambro (and the whole market) has quite a few buyers in the sense that it serves a niche consumer market. Also, buyers face no switching costs, and thus they have negotiation leverage. However, the target consumers are not overly price sensitive, as the product itself is a premium quality product and the target audience is high-earning. Thus, buyers have a lot of negotiation leverage but are not that price-sensitive. All in all, the bargaining power of buyers is of average level.
Ambro is a premium product without existing direct competitors. However, if one widens the range of existing competitors to cover the non-organic substitutes, the Soylent provides the most similar option at the moment. Therefore our next post will concentrate on analyzing that.
Whole framework based on:
- Porter, M.E., 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review, (1), p.78-93.
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