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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Calder Rail runs intercity trains. A review shows that low-cost airlines and coach operators now offer the same journeys at lower prices, and customers can switch easily. Calder's board proposes using Porter's Five Forces to decide strategy. Which conclusion is most appropriate?

The substitute threat is high. Air and coach travel meet the same customer need in a different way at lower prices with easy switching, which caps Calder's pricing. Appropriate responses include differentiating its service or reducing costs, rather than treating the airlines as rail entrants or suppliers.

  1. ASubstitute threat is high and caps the prices Calder can charge, so it should consider differentiation or cost reductionCorrect
  2. BEntry threat is high because airlines are new entrants into rail, so Calder should lobby for licences
  3. CSupplier power is high because airlines sell tickets, so Calder should buy from them
  4. DRivalry is low because the airlines are in a different industry

Explanation

Airlines and coaches meet the same need in a different form, which is the substitute threat. Easy switching and lower prices cap what Calder can charge. Strategy responses include differentiation or cost focus. They are not new rail entrants, and the other options misidentify forces.

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