Porter’s ‘Five Forces’ Analysis of Ford Motors
The automotives industry is marked by intense competition. Here, any brand must focus on innovation to retain its market share. Over the last few years, Ford has performed excellently in this area. Its revival has been based on excellent leadership and technological innovation. The credit of its renovation goes to Mulally’s leadership. He led the company through difficult times. His One Ford plan successfully reversed the fortunes of the motors giant.
Since then, the automotive brand has not looked backwards. The one Ford plan was a focused effort. It synchronized the efforts and performance of the brand globally. Since then, Ford has performed quite well against rival brands. Mulally brought out the hidden technological talent inside Ford. During the process, the company underwent a profound cultural change. Now, the motors giant aims to grab the leadership position in the industry.
Leadership for Ford, means technological excellence and customer satisfaction. However, the automobile industry is full of large and strong players. This adds to the intensity of competitive rivalry. It means the task before Ford is not easy. However, as the popular saying goes, when the going gets tough, the tough gets going. Ford, undoubtedly is a tough brand. It has proved its mettle in the market since the recession.
However, future could bring even intense competition. Most brands are playing aggressively since the recession passed. Still, based upon its innovative culture and remarkable global presence the company can be expected to continue on its growth spree. (Read a SWOT Analysis of Ford motors)
Competitive rivalry among the firms: High
The intensity of competitive rivalry in the automotive industry is very high. Ford faces intense competition from its rivals. Both the investment for entry and exit barriers are high. Firms focus heavily on competing aggressively rather than exiting. With time, as the number of players increased in the industry, the level of competition grew. Today, the number of rivals of Ford has grown. Its competitors are highly aggressive in their approach. Whether it is in terms of technological innovation or marketing, firms use aggressive tactics to gain market share.
The number of firms in this sector might not be very high. Still, the degree of competition remains intense. Technological innovation is the rule of the market. The firms have to fight to retain market share and prevent switching. In such a situation, brands like Toyota pose a major competitive threat. To manage the level of competition in the industry, Ford must focus on addressing external forces affecting competition. Any vehicle brand aiming to achieve the leadership position cannot afford to ignore its competitors. Complacency can only lead to the loss of market share.
Bargaining power of customers: Moderately high
Customers are an important influence on any business. It is also the case with Ford. In its case, both the switching costs and the size of individual purchases is moderate. While the size of each purchase is moderate, its contribution to the company’s revenue is also small. However, the customer demand is an important factor. Changes in demand influence the company’s performance and revenues. It is why the bargaining power of the customers is moderate in Ford’s case. The brand should focus upon customer satisfaction apart from technological innovation. It should also focus on increasing the size of its customer base. The brand needs to attract new customers in larger numbers.
Bargaining power of suppliers: weak
The bargaining power of Ford suppliers is weak. Suppliers can be a significant influence, however, not in Ford’s case. It is mainly because most of them lack forward integration. So, they lack control on their sales or distribution. Ford’s vertical backward integration is also a major factor that reduces its suppliers’ bargaining power. It limits Ford’s dependence on the suppliers. Ford can produce some of the parts required for manufacturing its vehicles. To reduce the bargaining power of the suppliers further, it can focus on being more self-dependent. In terms of production as well as sales and marketing, Ford must reduce its dependence on its suppliers. If the bargaining power of the suppliers is allowed to increase, it will raise the production costs. In these areas where Ford has to depend on its suppliers, it can work to improve its capabilities.
Threat of Substitutes: High
The threat of substitutes in case of Ford is high. It is because the number of substitutes is high. Apart from other vehicle brands, there are public modes of transportation. To some extent, this threat gets mitigated by Ford’s performance and quality. Since Mulally became the CEO, Ford has focused on differentiation through innovation. Its products provide superior customer experience. They are technologically innovative and equipped with superior safety features. The quality of Ford products mainly minimizes the threat of substitutes and competition. Not all the competing products are as good in quality. Its products can be superior in terms of quality, style as well as safety. Apart from it customer service is also a plus point that has the potential to engage customers. So, finally the threat of the substitutes becomes moderate to low.
Threat of new entrants: weak
The barriers to entry in the automotive industry are high. It limits the capacity of the new players to enter this sector. Very high capital investment is required to lay the foundation of a brand. The costs of marketing and brand development are also high. Investments in research and development plus customer service and supply chain network are all high. This limits the capacity of the new entrants. As a result, they do not pose a significant threat to Ford. Brand image becomes a very important factor in terms of sales and profits. Any new brand would have to invest a lot in terms of time, efforts and money. These all are needed to develop a strong brand image in the automotive sector. Ford has a strong brand image and established brand presence. These factors minimize the threat from new entrants or competitors.
A Porter’s five forces analysis of Ford motors shows that the company is in a strong bargaining position across most categories. Whether it is the suppliers or the customers, none is in a very strong position to affect Ford negatively. Apart from that, Ford has been able to moderate the threat from substitutes and competing brands as well. New brands generally find it difficult to enter unless they can invest large sums. It can be quite difficult to build and erect a brand with a great image and other significant capabilities. All these factors indicate the strong position of Ford in the industry.