Canopy Company’s Porter’s Five Forces Analysis

Introduction

The main reason why I chose to link Porter’s five forces concept to the Canopy’s case is that for Canopy, understanding the competitive environment of the market is crucial to remain the market leader in the changing circumstances. The Monitor Group article is also interesting in this case, as it allows us to see how the company that failed to adapt to the evolving market experienced a struggle that resulted in its bankruptcy. I feel that Porter’s concept is somewhat applicable to both cases, even though Denning (2012) argues that the theory is outdated and cannot be used to develop current and effective strategies. Moreover, Denning’s (2012) analysis offers a new way of looking at Porter’s five forces concept by shifting the focus from the competitors to the perceived value of the company.

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Canopy is in the middle of an industry change, occurring due to the outside forces. By legalizing cannabis, the Canadian authorities provided the company with an opportunity to move into a new market of recreational cannabis, thus expanding production and generating more revenues. By applying Porter’s five forces model to the case, it is possible to obtain more information about how Canopy’s future position in the market will be different from the current picture. For instance, one of the key forces, according to Porter, is the force of potential entrants (Crossan, Rouse, Fry, & Killing, 2009). Upon moving into the new market, Canopy will face an increase in the number of competitors, which could threaten its position as the market leader.

For example, the case study outlines that, apart from the existing competitors, there is also a threat of tobacco companies entering the market of medical cannabis production (Chandrasekhar, 2016). However, the image of tobacco companies would not allow them to win a significant amount of customers due to the association of tobacco with various health problems. After the legalization of recreational cannabis, however, the target customers will no longer be using cannabis for medical reasons, and tobacco companies might be successful at entering the recreational cannabis market. Moreover, Canopy’s expansion to other countries will also increase the force of suppliers, as the company is planning on using third-party manufacturing. Overall, the case of Canopy shows that consideration of the five forces is essential for the business to comprise an expansion strategy.

Denning’s (2012) account of the Monitor Group collapse, on the other hand, shows the company’s lack of insight into the changing market of business consulting. The development of newer strategies and the increasing power of consumers led to Porter’s strategic approach becoming irrelevant and the consulting company collapsing. Moreover, in his discussion of the case, Denning (2012) criticized the five forces theory, stating that, in the current market, the consumer is the only significant force, and that the focus of the business strategy should be on adding value to the business to attract more customers, while the industry competition should be given less consideration.

Nevertheless, today, competition is one of the factors that influence the value of the business. For example, competition can provide opportunities for innovation and improvement of work processes (Saltzman, 2014, para. 5). Moreover, successful handling of the competition contributes to the positive corporate image, which generates more attention from the customers and wins their trust, thus adding value. In this way, the fact that the customer becomes the central force in the market does not necessarily mean that the competition should be overlooked. But, rather than defeating the competitors, which is the end goal of strategy by Porter, the focus should be on maintaining a good competitive position by closely analyzing the competitors and developing a strategy by the standards they set, which is what Canopy should be aiming to do upon moving into the new market.

Similarities

The Importance of the Customer

Both in the case study and the article, there is the idea that customer is the primary force affecting the company’s position in the market. For example, Canopy’s marketing strategy is focused on improving the image of the product to attract more customers to buy it. The company uses celebrity advertising as the primary way of promotion; however, before choosing famous representatives, the management considers the customer’s point of view by examining if the celebrity was the subject of any negative publicity that could influence the customer’s perception of the company and the product. Denning’s (2012) article also advocates for a customer-centered approach: “Ultimately what killed Monitor was the fact that its customers were no longer willing to buy what Monitor was selling” (para. 49).

Outlook for Competitors

Another point of similarity is that, despite the strong customer focus, both sources show the importance of having an outlook for competitors, although not in the same way. Chandrasekhar (2016), for instance, spends a considerable part of the case study on exploring Canopy’s competitors. The author explains the power of licensed producers and the legislation that governs their business activity, thus leaving more potential customers for Canopy: “Before MMPR came into effect, approximately 40,000 individual licensees were cultivating 3.2 million marijuana plants in their homes under the authorization from Health Canada. Each licensee was allowed to produce medication for no more than four patients” (Chandrasekhar, 2016, p. 3). Denning (2012), on the other hand, discusses the overall picture that led to the collapse of the Monitor Group. Even though the author does not explicitly discuss the competition that surrounded the company, it is clear that increasing competition from other consulting companies was one of the reasons for the failure of Porter’s business.

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Product Features

Thirdly, both cases also address the importance of the product offered and its features. Even though Canopy has a very limited choice of products, the company approaches the issues of variety by including blend options that have different attributes, such as the THC and CBD content. Moreover, the company also performed segmentation to arrange the cannabis sold by its characteristics: “The category was segmented based on product attributes […] For example, an A grade cannabis had loose buds, an AAA grade had tight clusters of flowers, and a BB grade left black ash when burnt” (Chandrasekhar, 2016, p. 2). Similarly, Denning (2012) addresses the importance of product planning as the determinant of the customer’s choice. One of the main ideas of the article is that the Monitor Group’s failure was not due to the market conditions but rather because their product failed to achieve what it had claimed: “As Clayton Christensen demonstrated in the industry after industry, disruptive innovation destroyed company after company that believed in its sustainable competitive advantage” (Denning, 2012, para. 30).

Changing Markets

Finally, both the article and the case study illustrate the influence of the changing market environment on the company’s strategy and performance. For example, Denning (2012) explains that Porter’s strategy was largely influenced by the external forces that affected businesses in the 1950s: “In the studies of the oligopolistic firms of the 1950s on which Porter founded his theory, it appeared that structural barriers to competition were widespread, impermeable and more or less permanent” (para. 28). However, globalization changed the market environment, thus making Porter’s strategy no longer applicable: “Over the following half-century, the winds of globalization and the Internet blew away most of these barriers, leaving the customers in charge of the marketplace” (Denning, 2012, para. 29). Canopy’s case, on the other hand, is entirely based on the legislative changes affecting the business of medical cannabis. By legalizing the sale of cannabis for recreational use, the government of the country expanded the market, thus affecting the scale of the business: “The legal medical marijuana market in Canada was valued at between $125 million and $150 million. After the legalization of recreational cannabis, the market as a whole was likely to grow up to $4 billion” (Chandrasekhar, 2016, p. 4).

Differences

The Role of Marketing

Canopy’s case shows the company’s consideration of marketing strategies available and its role in developing the business. Moreover, the company’s approach to marketing is relatively experimental, as it is based on using Snoop Dog as a celebrity representative. Denning (2012), on the other hand, does not consider the role of marketing in the Monitor Group’s case, even though there could be opportunities to address the lack of customer interest and the rise in the competition by combatting the perceived image of Porter’s strategy as outdated.

Analysis of Competitive Forces

Contrary to the Canopy’s case, Denning (2012) does not discuss the competitive environment that affected the Monitor Group’s popularity and caused its failure. Instead, Denning (2012) argues that the competitive environment is not an important factor in determining the company’s strategy and future. Nevertheless, it is hard to ignore the popularization of business consulting companies, as well as the development of business strategy, thought that occurred in the last decades of the 20th century. The rise of new companies using current approaches and tools could be one of the major reasons for the Monitor Group’s failure. Chandrasekhar (2016), on the opposite, discusses Canopy’s major competitors in great detail to provide a deeper exploration of the current market situation.

Implications

Changing Market Environment

Both cases prove the strong influence of the changing market environment on the company’s competitive position, thus showing that an efficient business strategy should demonstrate consideration of the market trends. Canopy’s plan of expansion, for instance, is likely to be productive and allow the company to retain its competitive position, as it shows a thorough understanding of what changes will take place in the environment and why. Predicting future market structure allows the business to tailor its strategy to meet any challenges that could arise, thus giving the company a competitive advantage of being flexible and adaptable. The Monitor Group, on the other hand, did not manage to fit into the changing market and to adapt its ways by the new customers’ expectations and needs, which is one of the factors that led to its failure.

Awareness of Competitive Forces

Another reason why Canopy’s case seems promising is the fact that the company used the information on the competitive forces at play to determine its business strategy. Information on the competitors can be beneficial for the company in several different ways. Saltzman (2014) argues that information about the competitors is a great source of business knowledge: for example, if the company is about to implement a certain change that did not have a positive effect on its major competitor, it would be helpful to assess the mistakes made by the competitor to avoid moving in the same direction. Moreover, monitoring competition can also help the company to determine its position in the market and indicate any new opportunities or threats to it. The Monitor Group failed to keep track of the competition and answer to the innovations offered by its competitors, which also influenced the outcome of the case.

Ensuring Product Variation

Finally, it is also clear that product variation is an important factor in ensuring the company’s competitive sustainability. Allowing the customers to have more than one option to chose from is crucial, as it can potentially increase the number of customers and help achieve higher revenues, while at the same time ensuring a firm competitive position and preparedness for market changes. The Monitor Group’s case, on the other hand, did not have an extensive list of products it set. The lack of variety contributed to the company’s low flexibility and adaptability, which are vital if the company aims to stay in the market.

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Conclusion

Overall, this assignment helped me to obtain a deeper understanding of what constitutes good and bad business strategies. The two cases chosen are great examples of how important it is to explore the market environment before attempting to make any decisions or set a new strategic direction for the business. Although Denning (2012) argues against Porter’s five forces theory, it is clear that it can still be used to evaluate the market and find the best choices for future development. Canopy’s case shows evidence of consideration of this concept, whereas Denning’s (2012) article offers no record of a detailed market analysis or attempts to address the declining competitive position, which is why the two cases have opposite outcomes.

References

Chandrasekhar, R. (2016). Canopy growth corp.: Product messaging for recreational cannabis. Richard Ivey School of Business Foundation, case study no. 9B16A067.

Crossan, M. M., Rouse, M. J., Fry, J. N., & Killing, J. P. (2009). Strategic analysis and action (7th ed.). Toronto: Pearson.

Denning, S. (2012). What killed Michael Porter’s Monitor Group? The one force that really matters. Forbes Leadership. Web.

Saltzman, J. (2014). Why competition is good. Entrepreneur. Web.

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