III.
Bargaining Power of the Consumers
The power of the buyers to affect the industry is an important aspect of the business or industry. If the
bargaining power of the consumers is somewhat strong, then the intensity of the competition between
the players in the market increases. At least 80% of the goods and services being offered by 7- Eleven is
standard or similar to the other players in the market. Under such conditions, the buyer may have a say
on the price of goods since they feel that they can easily find a substitute to the products of 7- Eleven.
The said buyers also do not have huge switching costs in changing vendors. (Porter, 2008) Switching
costs refer to the negative costs that consumers get when switching to another vendor. Since consumers
can easily go to a supermarket, sari-sari store or any other convenience store, then their bargaining
power is somewhat strong. In the case of 7- Eleven, their biggest threat in the market is Mini Stop. There
is always a Mini Stop within a 500 mile radius of 7-Eleven. This strategic positioning of Mini Stop
convenience stores near 7-Eleven, makes it easier for consumers to switch vendors. This gives the
consumers the ability to influence the setting of the prices.
IV. Bargaining Power of Suppliers
Increasing intensity of competition is prevalent when there are a large or small number of suppliers of
raw materials. If the suppliers are powerful, then they may capture for themselves some of the profit or
value of the industry. The suppliers can charge higher prices or limit quality of the goods and services.
Companies like 7-Eleven depend on different suppliers since they have an assortment of goods and
services. There are two main sources of supply in 7-Eleven supply chain. First one is suppliers and
another is the company itself. (CP ALL Plc, 2009, and Puapairoj, et al., 2009) The 93 percent of total
products in 7-Eleven stores are supplied from 1,200 – 1,500 suppliers. Each has the share for less than
20 percent of the total sales of which according to the risk management scheme, does not depend on
any particular supplier more than necessary. The left 7 percent are supplied from 7-Eleven groups. The
company has in-house manufacturers, within other holding companies in Philippine Seven Group, which
supply daily products such as chilled food, bakery and other exclusive food. This ensures that the power
of the 7-Eleven suppliers is minimal since they do not rely too much on just one supplier. There is also an
insignificant amount of switching costs to another supplier. The differentiated products of 7-Eleven
which include their chilled food and baked goods are produced by their in house manufacturers. This
significantly diminishes the power of the suppliers. Suppliers are only powerful if:
- There can be a forward integration threat by the suppliers. In this case, the suppliers themselves
can threaten to produce the similar products of the industry.
- Their product is differentiated.
- There is a significant switching cost.
For the first and second instance, we could infer that there can be no threat of producing the same
differentiated product for 7-Eleven makes use of in-house manufacturers for their special goods and
services. There will also be minimal significant switching cost for the industry makes use 1,200- 1,500
suppliers. 7-Eleven also ensures that there is minimal reliance on others for their products.
V. Threats of New Entrants and Entry Barriers
New players to the industry can diversify the market and could affect competition and the prices of the
goods and services. When the threat is high, then it lessens the amount of profit or money a business
may gain. It’s either the existing companies hold down their prices or they invest in creating a modern
and diverse industry of their own. The threat of new entrants depends highly on the entry barriers of
the industry it is in. If the barrier is high, then little or few companies would want to engage in that
business. There are several entry barriers that are advantageous to the existing companies relative to
the new entrants. This includes:
- Supply Side Economies of Scale: This happens when firms produce larger volumes but still
maintain lower costs per unit since they can spread fixed costs over more units or they are more
efficient in production. ( Porter, 2008) It can be said that 7-Eleven enjoys this advantage for
there are thousands of 7-Eleven stores that are scattered all over the country.
- Demand Side Benefits of Scale: This also known as network effects, for this arises when a buyer
is willing to pay more for a company’s product when a lot of other buyers patronize the
company. Almost everyone in the Philippines knows about 7-Eleven. The company has
established itself as a major player in the Philippines and has continually improved their goods
and services to match the patronization of the people.
- Capital Requirements: There is a need to invest large financial resources in order to compete
with the incumbent businesses. ( Porter, 2008)
- Incumbency advantages independent of size: Incumbents have cost or quality advantages not
available to potential entrants. These advantages can come from technology, access to raw
materials, geographic locations and brand identities. (Porter, 2008) Since 7-Eleven has been in
the industry for quite some time, it has established brand identity all over the Philippines and
even the world. Investors and other suppliers may have preferential tendencies since the brand
is well-known.
- Restrictive Government Policy: Government policy can hinder or aid new entry directly, as well
as amplify (or nullify) the other entry barriers. Government directly limits or even forecloses
entry into industries. (Porter, 2008)
This chart shows the number of convenience stores the Philippines has from 200-2008. It shows that
even though there are a lot of new entrants, 7-Eleven is still unsurpassed.
http://www.quickmba.com/strategy/porter.shtml
Porter, Michael (2008) The Five Competitive Strategies that Shape the Market
