The Austrian beer industry is large, comprising of many producing enterprises (146), which produced nearly 600 types of beer (Export. by, 2009). The industry environment is therefore quite complex.
The buyers of Austrian beer wield a lot of power, mainly due to the fact that there are many substitutes available from which the buyers can choose from. This makes the prices of beer to become very elastic, meaning that, a small increase in price leads to a huge fall in demand for the companys beer. The buyers power is also very high if the companys beer is not differentiated from products of other companies, because it reduces buyers switching costs. This force is definitely a concern for beer companies in this industry, since it makes retaining customers a tricky issue. A company in this industry should consider differentiating its products in order to reduce the buyer power, by raising their switching costs.
Suppliers also have a lot of power in this industry due to the fact that, they are more concentrated than the industry they sell to. This power is also increased by the fact that the major input for beer is barley, and thus there are no substitute inputs. The companies therefore, dont have choices. In fact, according (2009), the suppliers have doubled the price of barley and other inputs since 2006. This emphasizes the power that the supplier group wields. It gets even worse if the beer company is not a strategic customer to the suppliers. This group controls the prices at which company sells its beer and thus, directly affects the profits and sales, especially in this price-elastic consumer market. It is therefore important for a company to keep track of this supplier group, by forming buying organizations with other beer companies. This will enable the company to reduce the supplier power, thus creating a better industry environment for its business, by minimizing fluctuations in input prices.
The threat of substitute products is also major concern for beer companies in this environment, because they have potential of robbing a company of its customers, either due to their low prices or higher quality. This can be attributed to the fact that, the consumers costs of switching from one beer to another are low, owing to the lack of product differentiation, meaning that buyers are inclined to substitutes. Companies in this industry can reduce the power of this group by differentiating their products and implementing a cost leadership strategy. These will work to raise the switching costs from the companys products to substitutes.
New entrants are not a major threat to existing companies in this environment. This is because of the learning curve advantages and economies of scale advantages accrued to existing players. However, for new entrants, this is a difficult market to penetrate due to the Federal licensing and control policies, lack of proper access to inputs and lack of access to distribution channels. The new entrant is also likely to get a thrashing by existing players, in a bid to prevent the new company from entering the industry. This raises the barriers to entry into this beer industry.
Rivalry amongst existing players is also a concern for a company in this because there are many players in the industry with products that are not highly differentiated. The brand switching costs are also very low. Exit barriers and fixed costs are also high, making it difficult for players to leave the industry. These factors will make companies to engage in price wars as they jostle for market positions. Players can reduce the rivalry by forming price setting cartels. An individual company may also ward off rivals by putting more emphasis on the place aspect of the marketing mix. Acquiring strong and extensive distribution networks is the most sustainable strategy in a competitive environment.
The buyers of Austrian beer wield a lot of power, mainly due to the fact that there are many substitutes available from which the buyers can choose from. This makes the prices of beer to become very elastic, meaning that, a small increase in price leads to a huge fall in demand for the companys beer. The buyers power is also very high if the companys beer is not differentiated from products of other companies, because it reduces buyers switching costs. This force is definitely a concern for beer companies in this industry, since it makes retaining customers a tricky issue. A company in this industry should consider differentiating its products in order to reduce the buyer power, by raising their switching costs.
Suppliers also have a lot of power in this industry due to the fact that, they are more concentrated than the industry they sell to. This power is also increased by the fact that the major input for beer is barley, and thus there are no substitute inputs. The companies therefore, dont have choices. In fact, according (2009), the suppliers have doubled the price of barley and other inputs since 2006. This emphasizes the power that the supplier group wields. It gets even worse if the beer company is not a strategic customer to the suppliers. This group controls the prices at which company sells its beer and thus, directly affects the profits and sales, especially in this price-elastic consumer market. It is therefore important for a company to keep track of this supplier group, by forming buying organizations with other beer companies. This will enable the company to reduce the supplier power, thus creating a better industry environment for its business, by minimizing fluctuations in input prices.
The threat of substitute products is also major concern for beer companies in this environment, because they have potential of robbing a company of its customers, either due to their low prices or higher quality. This can be attributed to the fact that, the consumers costs of switching from one beer to another are low, owing to the lack of product differentiation, meaning that buyers are inclined to substitutes. Companies in this industry can reduce the power of this group by differentiating their products and implementing a cost leadership strategy. These will work to raise the switching costs from the companys products to substitutes.
New entrants are not a major threat to existing companies in this environment. This is because of the learning curve advantages and economies of scale advantages accrued to existing players. However, for new entrants, this is a difficult market to penetrate due to the Federal licensing and control policies, lack of proper access to inputs and lack of access to distribution channels. The new entrant is also likely to get a thrashing by existing players, in a bid to prevent the new company from entering the industry. This raises the barriers to entry into this beer industry.
Rivalry amongst existing players is also a concern for a company in this because there are many players in the industry with products that are not highly differentiated. The brand switching costs are also very low. Exit barriers and fixed costs are also high, making it difficult for players to leave the industry. These factors will make companies to engage in price wars as they jostle for market positions. Players can reduce the rivalry by forming price setting cartels. An individual company may also ward off rivals by putting more emphasis on the place aspect of the marketing mix. Acquiring strong and extensive distribution networks is the most sustainable strategy in a competitive environment.
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