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ACCA Applied Knowledge · Business and Technology · Competitive factors

A coffee shop chain faces customers who might instead buy tea, energy drinks or bottled juice. A manager argues that because no other coffee shop has opened nearby, competitive pressure is minimal. Which statement best identifies the flaw in this view under Porter's Five Forces?

The flaw is ignoring the threat of substitutes. Tea, energy drinks and juice satisfy the same customer need in a different form, so competitive pressure exists even without a nearby rival coffee shop. Five Forces analysis must consider products from outside the direct industry.

  1. AIt ignores the threat of substitutes, which meet the same customer need in a different formCorrect
  2. BIt ignores supplier power, because substitutes are supplied by suppliers
  3. CIt confuses rivalry with barriers to exit, which are unrelated to nearby competitors
  4. DIt wrongly assumes that buyer power depends on the number of coffee shops

Explanation

Substitutes come from outside the industry's direct competitors and satisfy the same need, such as a refreshing drink. The manager looked only at direct rivalry. Barriers to exit relate to rivalry intensity but do not address the missed substitute pressure.

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