Lowe’s Five Forces Analysis

Lowe’s Five Forces Analysis

Lowe’s is one of the well-known brands in the home improvement industry. Its primary competitor is Home Depot. In the home improvement industry, most brands sell products that are generally undifferentiated. In terms of quality and price products sold by one brand are similar to those sold by the other. It is generally easier to switch brands for the customers. Still, Lowe’s has built a brand image and based on the large range of products it sells, it is a popular destination for those looking to improve their homes. The home improvement industry has grown highly competitive as a number of other brands have emerged. Apart from it there is competition from the ordinary retailers who also sell a range of home improvement products. This is a Porter’s Five Forces analysis of Lowe. The five forces model was developed by Michael E Porter. These five forces are a part of every industry and market and determine the level of competition and attractiveness of the industry. These forces also have a significant effect on how competitive a brand is and its profitability.

Lowe Five Forces Analysis

Bargaining power of suppliers: Low

The bargaining power of Lowe’s suppliers is low. It is because the financial clout and size of Lowe’s gives it higher control. If some of its suppliers enjoy moderate bargaining power then it is because of their size. However, none of the suppliers would like to lose business from customers like Lowe’s. Apart from that Lowe’s can switch from one supplier to a new one easily. In case of the suppliers, that will mean a major loss. Moreover, several suppliers maintain exclusive long term relationships with the brand.  Based on these factors the bargaining power of the suppliers of Lowe’s is low.

Bargaining power of the buyers:

The bargaining power of the buyers is high in case of the home improvement industry. While the number of buyers is large, there are also several brands and small businesses in the market. The switching costs for the customers are absolutely low. Customers have several options for them. Most brands sell similar products with similar quality and practices so it does not matter who you buy from. Customer service and satisfaction become an important basis of competition for the home improvement brands. If the bigger brands like Lowe’s have any competitive advantage then it is because of the vast range of products they sell and their customer service. These brands are like one stop shops for all the customers’ home improvement needs. Still, based on the large number of choices and insignificant switching costs the bargaining power of the buyers is strong.

Threat of Substitute Products:

The threat of substitute products is strong for Lowe’s. It is because the products sold by brands and businesses are similar. Due to the very low level of differentiation, the same products can be bought from any of the sellers. There are no switching costs for the customers. What they can buy from one brand, they can buy from another too. The retailers like Walmart also have a small range of home improvement products available. Small businesses dealing in home improvement product scan also be a threat locally. So, overall there is a strong threat of substitute products for Lowe’s.

Threat of new entrants:

The threat of new entrants is not very strong in the case of Lowe’s. New businesses can enter the market and start with small capital investment. However, to build a large and influential brand the investment is bigger. Apart from operating costs, there are costs of marketing and labor costs too. So, creating a big brand and grabbing a significant market share is a challenging task. Still, there is some threat from the small businesses which is because of the low switching costs for the customers. The customers can easily grab the items they need if they can find them in the neighborhood. Moreover, the exit barriers are not low if they are not too large. Any brand would not readily exit but fight to retain its market share. So, the threat of new entrants is moderate for Lowe.

Level of Competitive Rivalry in the Industry:

The level of competitive rivalry in the home improvement industry is high. The two biggest brands are Home Improvement are low. However, there are also several other brands which are making their presence felt intensely. Ace Hardware, Menards, True Value and Sears are some of the other brands which have significantly grown in influence in the industry. Most brands sell similar products. The small businesses also pose some competitive threat. Apart from it the retailers like Walmart also sell a smaller range of home improvement products. So, over all the competitive threat for Lowe’s is high.