Porter's Five Force Model
BARGAINING POWER OF CUSTOMERS
The customers are able to exert preassure to drive down prices, or increase the require quality for the same price, and therefore reduce profits in an industry. The Home Depot one of the most powerful retailers with a strong presence throughout the USA, Canada, Mexico, and China, which helps leverage the bargaining power customers. In the case of Home Depot, the bargaining power of customers or buyers is a MEDIUM FORCE.
THREATS OF SUBSTITUTIONS
Substitute products refer to other similar products that the customer can use. The smaller the number of substitutes that a product has, the greater the opportunity for the firms in industry to set their own prices and retain market share. The threat of substitutions are considered a STRONG FORCE for Home Depot. As there may be many businesses that sell raw materials, tools, and other construction equipment, Home Depot is one of the very few that provide a one-stop-shop experience.
BARGAINING POWER OF SUPPLIERS
The Home Depot has a bargainings MEDIUM FORCE of suppliers. While Home Depot may be a large-scale purchaser to their suppliers, this power over suppliers is diluted by online retailers (Amazon, eBay, etc.) and many other storefronts (Lowes, Sears, Acme, Ace Hardware, mom-and-pop stores, etc.).
THREATS OF NEW ENTRANTS
In the home improvement retailing industry, the risk of entry by potential competitors is LOW FORCE. In the U.S. home improvement retailing industry, the top companies are Home Depot, Lowe's, and Sears. Aside from Lowe's and Sears, there are very few other direct competitors. Indirect competitors are very abundant, being that Home Depot provides many different products. Indirect competitors that sell items that are similar to Home Depot(Tools, solvents, hardware, building equipment, etc) are those such as Snap-On Tools, Autozone, PepBoys, Walmart, McMaster-Carr, and other local/specialty stores that allow customers to buy/rent supplies and equipment. These are indirect competitors because they have different target markets and only sell a limited amount of similar items to that of Home Depot.
RIVALRY
Rivalry refers to the competitive struggle for market share between firms in an industry. The rivalry of The Home Depot provides a MEDIUM THREAT. Home Depot may be one of the few large-scale retailers with a household name, but not all customers are looking to make all-conclusive purchases. Local or specialty stores, may steal market share away from Home Depot if the customer only needs one or two items. Others may use online retailers to make small purchases if time is not a factor.
BUSINESS STRATEGY
The Home Depot followed the industry-wide, differentiated business model. The focus on distinguishing themselves from competitors are with trained and knowledgable employees, brand-name products, but are mainly differentiated from the rest of their industry by their unique "one-stop shop" customer experience.
As the home improvement industry became less fragmented, Home Depot's top management team has increased efficiency by using economies-of-scale to lower costs and strong marketing techniques to gain market share. Customers are influenced to purchase from Home Depot by recognition from their marketing, and attractiveness of their prices. This results in increased effectiveness of their strategy. This has helped Home Depot to be more profitable than Lowe's and other competitors.
BUSINESS STRATEGY
The Home Depot followed the industry-wide, differentiated business model. The focus on distinguishing themselves from competitors are with trained and knowledgable employees, brand-name products, but are mainly differentiated from the rest of their industry by their unique "one-stop shop" customer experience.
As the home improvement industry became less fragmented, Home Depot's top management team has increased efficiency by using economies-of-scale to lower costs and strong marketing techniques to gain market share. Customers are influenced to purchase from Home Depot by recognition from their marketing, and attractiveness of their prices. This results in increased effectiveness of their strategy. This has helped Home Depot to be more profitable than Lowe's and other competitors.
