CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment
Anand Motors makes diesel auto-rickshaws. Electric three-wheelers offering lower running costs are gaining customers, and some of its buyers say they will switch if prices of electric models fall further. Which Porter force does this mainly represent, and what best captures the strategic concern?
Electric three-wheelers fulfil the same transport need using a different technology, so they are substitutes. The concern is that customers may switch to them if relative price or performance improves, which limits the prices and profits diesel makers can earn.
- AThreat of substitutes; customers may move to a different product serving the same needCorrect
- BThreat of new entrants; competitors may copy its diesel design
- CRivalry among existing firms; diesel makers are cutting prices
- DBargaining power of suppliers; component makers raise prices
Explanation
Electric three-wheelers meet the same transport need through a different product, which is the threat of substitutes. It is not new entry or rivalry among diesel makers, as no such facts are given, and nothing concerns suppliers.
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