In the last few years, the number of households opting to keep pets has been growing steadily thereby fuelling growth in the pet food industry with already existing players coming up with new strategies to ensure that they capture this new market and new players coming into the market to take advantage of economic gains resulting from an increase in pet food demand. International demand for pet food is also a factor in the pet food industry as more and more people are venturing into the export market due to the availability of an international market. The pet food industry has developed from the production of conventional pet foods to include different foods such as canned foods, moist foods and dry foods to meet the nutritional needs of pets as is being demanded by their owners as well as the changing demand patterns for pet food. Companies have invested greatly in research to satisfy this change in demand as well as taste and preference trends in the pet food industry as consumers demand value for their money. Most of them are reaping the benefits thereby making the industry attractive to new investors. There is also the issue of organic pet food which is considered purer and safer and this has attracted customers away from natural pet foods.
Pet Food Company
In this paper I choose to act as an already existing company in the United States seeking to come up with a new product for the pet food market. The company has been dealing with natural pet food products but due to the promise of success in the organic pet food production sector, it seeks to introduce an organic product in the market. The food product will be for dogs and depending on its performance in the market, the company will consider introducing a similar product for cats. In order to do this the company will be required to come up with strategies that will ensure the success of the product in the market. From the research that has been carried out in the pet food industry, the company has learned that there is potential for organic foods in the market and if it takes on correct investment plans, the promised economic gains will be beneficial as they will facilitate the company’s future expansion plans.
The Pet Food Industry about Porter’s Five Forces Model
Porter’s Five Forces have become a significant point of analysis for companies seeking to assess the profitability of the industries in which they operate and the pet food industry is no exception. The five forces analysis suggests that in order for a company to attain its desired level of profitability the industry it operates in must be viable in terms of profitability and the company in question must have a competitive advantage over the other industry players. This can be summarized as Competitive Position x Profitability = Profitability. A company seeking to reap the benefits of operating in the pet food industry must therefore determine the following:
Buyers’ Powers: This refers to the level of bargaining powers that buyers hold in the market. According to porter, when buyers are too powerful, suppliers tend to suffer (Burgers 56). The power of buyers is determined by their number compared to that of the sellers, the level of product differentiation in the industry, the cost of switching to other products, the level of importance the buyers attach to the product and the quantity in which buyers purchase their products. Having extremely powerful buyers in the market does not work well for a company as this means that they can force down the prices of products while at the same time demanding that the company supplies better quality products and as such driving up the costs of the company which in turn eat into the company’s profits (Porter 14) Buyers attain this kind of power if they are few in the market or they purchase products in large volumes, if the industry’s products are largely undifferentiated, the switching cost is low for the buyers meaning that they can easily switch products or if they can integrate backward and produce the product themselves if they think that the seller is making great profits.
According to a pet survey carried out by the American Pet Products Association (2009/2010), sixty-two percent of the country’s households own pets. 45.6million of these households own 77.5 million dog pets and spend approximately 229 US Dollars on dog food per annum. This means that it offers a sufficient market for dog food. The buyers for dog food are many and in most cases do not purchase their products in bulk. Over the years as a company we have managed to form a niche in the pet food market which assures us of customer loyalty due to the continued production of quality products. This means that the power of buyers is maintained at reasonable levels and we can remain profitable. By introducing our new organic product, we hope to take advantage of our position in the industry and if the product succeeds, profitability is guaranteed.
Threat of Substitute Products: The pet food industry is comprised of several market players who offer slightly differentiated products meaning that the products can act as substitutes to some extent. Though it is important to note substitutes are not always directly related. When the threat of substitute products is high, the profitability of the industry is affected in that it will below. The threat of substitutes is considered high if the cost of switching to using the substitute is cheap and if the substitute products offer a more attractive relative value. The company has considered this fact and is coming up with a product that will be unique in its own way so as to avoid any major threats from rival companies offering organic pet food for dogs.
Rivalry among Existing Competitors: Existing competitors always pose a great threat to a company, especially if the companies are operating on the same level. Competition among companies operating in the same industry can be in the form of price wars, new products, advertising and service provision improvement (Porter 18). In cases of intense rivalry, profitability goes down because companies use prices as the main competition platform. For example if one company lowers the prices of their products the other companies tend to follow suit thus reducing the level of their profits since their operational costs remain the same. In introducing the new pet food product, the company will definitely cause reactions from other industry players. They may react by coming up with similar products in the long run and the short run maybe use prices and advertising to fight off the competition that the product will elicit. The company has prepared for this by also coming up with vigorous advertising campaign strategies and setting the product price at an affordable level which will ensure customers get value for their money. The price was set after considering the cost of production meaning that it will still ensure profitability.
Power of Suppliers: According to Porter (130), if suppliers are extremely powerful, their actions will lead to thin profits for the industry since it will get to a point where the company will not be able to pass on their operational costs to the customers and will have to bear it themselves. For example if the cost of labor is too high, it will mean that the companies in the industry will have to absorb some of the cost of labor to avoid passing on the cost to their customers as this will mean that their products wont be affordable thereby giving rival companies a competitive advantage edge. In as much as the product quality is good, people will always opt for cheaper products that enable them save money. The general marketing trend in the industry is based on the effect of pets on human beings. The concept here is that pets are said to have some sort of healing power on humans for example playing with pets is said to reduce stress levels. The company intends to use this same concept to convince pet owners that by giving their pets the best available product in the market, they also receive the best from their pets.
Threat of New Entrants into the Industry: A successful industry will always attract new entrants into the market. These new entrants in most cases bring renewed vigor into the industry as they desire to acquire a market for their products and create a market niche of their own. This means that already existing industry players will feel pressured and in order to compete with new entrants they will have to re-invest a lot of their resources. The company in this case will be venturing into some sort of new market since it will be introducing a new organic product and therefore has to compete with those who are already offering organic pet foods as well as natural pet food producers.
The United States pet food industry has many players but it is mostly dominated by a few large companies which in most cases buy into smaller companies in a bid to expand their market, operations and production. These companies hold large market shares and a majority customer base meaning that in most cases it is difficult to compete with them. The profitability of the industry however continues to attract new entrants thereby increasing the level of competition in the industry. Companies, therefore, need to continue improving their strategies in order to remain competitive. The move by my company to introduce an organic product into the pet food industry is part of its strategies to ensure that it remains competitive by operating on the same level as other major companies. The industry trend shows potential for growth of the organic pet food market and the move to come up with this new product will benefit the company economically. According to Migoya, (para. 3), even the hard economic times have not dampened the demand for pet food since most customers continue to purchase the same quantity of food for their products despite the increase in most pet food prices. This has ensured that the growth of the industry has remained steady.
According to Porter (3), if the five forces are experienced at intense levels, then an industry’s profitability tends to go down. It is therefore up to companies within the industry to come up with strategies that will ensure they remain competitive even in such extreme situations and in order to do so, constant monitoring of the industry trends is imperative.
American Pet Products Association. “Industry Statistics and Trends”. American Pet Products Association. 2010. Web.
Burgers, Willem. Marketing Revealed: Challenging the Myths. New York: Palgrave Macmillan Publishers, 2008. Print.
Migoya, David. “Pet-Food Industry Enjoys Strong Sales in Weak Economy”. Denver Post. 2009. Web.
Porter, Michael. Michael E. porter on Competition: updated and Expanded Edition. Boston: Harvard Business School Publishing Corporation, 2008. Print.