Definition Porter's Five Forces Analysis and Market Segmentation - Paper Example

Porters Five Forces analysis is a framework for evaluating the impact of the various forces that influence competition in the industry. The framework is based on the insight that an effective business strategy should address all the opportunities and threats inherent in the target market (Burke, Stel, and Thurik, 2010, p.28). The analysis pays special attention to the five main competitive forces, which are the threat of new market entrants, the threat of substitute products, the intensity of competitive rivalry, the bargaining power of suppliers and the bargaining power of buyers (Dobbs, 2014, p.32).

Market segmentation refers to the strategy of dividing a target market into smaller groups based on different characteristics such as customers buying habits, gender, social class and age (Sarin, 2014, p.16). The smaller groups are usually composed of customers who are likely to respond in a similar means to marketing communications and who share common traits such as location, interests, and needs (Wedel and Kamakura, 2010, p.19). Among other benefits, market segmentation helps firms to understand their customers needs in a more effective way. This way, it becomes easier for firms to match their product with the needs of their customers.

About Vapiano

Vapiano is a restaurant company founded in 2002 and headquartered in Bonn, Germany. The establishment operates a chain of fast food restaurants offering Italian cuisines. Currently, Vapiano operates 180 outlets in 31 countries and is looking for opportunities to expand its global network of restaurants.

Definition Porter's Five Forces in Analysis of Vapiano

The following is a description of each of these five forces as they apply to Vapiano:

Competitive rivalry: this is a strong force because of a large number of rival companies offering fast food services. Vapiano faces intense competition because the industry is already saturated with hundreds of restaurants of different sizes such as global chains and regionally dispersed restaurants and local fast food stores. Due to the high concentration of rival restaurants, switching costs are very low (Brotherton, 2012, p.19).

Bargaining power of customers: this force is very high due to the low switching costs. A large number of service providers means readily availability of substitute products, which makes consumers influence very strong. Due to the ease of switching from one restaurant to the other, customers can impose strong demands on Vapiano. Due to the strong bargaining power of customers, it is imperative for Vapiano to develop more effective strategies for winning and retaining customers. These strategies may include product differentiation.

The threat of substitute products: this is a strong force because of a large number of rival restaurants that compete with Vapiano in the market. Because of the high degree of market saturation, customers have a wide variety of substitute products to choose from (Regina and Durocher 2011, p.29). As well, there are many substitutes for the restaurants like Vapiano. These substitutes include cooking food at home, food joints and bakeries. The various substitutes exhibit competition regarding quality, recipes and customer satisfaction.

The threat of new market entrants: This force is moderate and is related to the low switching costs and the relatively low capital requirement for entry into the market. It is relatively easier for small and medium-sized firms to enter the restaurant industry. New market entrants can easily lure customers away from Vapiano due to the low switching costs. As to overcome the threat of new market entrants, it is crucial for Vapiano to establish its restaurants in places with geographic advantages (Atul, 2017, p.2). Being able to take advantage of locational factors (such as by expanding overseas) can help Vapiano to neutralize the threat of new market entrants.

Bargaining power of suppliers: this force is weak because of a large number of suppliers available in the market and the low forward vertical integration. The large concentration of customers weakens the influence of individual suppliers on Vapiano. This is especially the case due to the lack of national or regional alliances among suppliers. This means that no single supplier can control the distribution network linked to Vapiano. As well, the relative abundance of the retail materials used in restaurants (such as meat, milk, and flour) reduces the influence of suppliers on Vapiano.

Vapianos Market Segmentation Strategies

Segmentation is one of the integral elements of Vapianos marketing strategy. The company has segmented its target market on the foundation of demographic, behavioral and psychographic characteristics. Regarding demographic segmentation, Vapiano has divided its target market into children, families, and students. The company offers different products, which match the needs of these consumer groups. For example, the company has established different outlets and offers foods that are suitable for families to carry takeaways.

Regarding psychographic segmentation, Vapiano focuses on satisfying the lifestyle and convenience needs of its customers. For example, the company offers low-calorie meals for customers who are interested in maintaining healthy lifestyles. The company also offers vegetable recipes for customers who do not take meat. It has also made some of its outlets a great place for relaxing and entertaining. Regarding behavioral segmentation, the company offers different products and services specially meant to satisfy customers needs such as birthday parties for adults and children.

Conclusion

Porter's five forces analysis has shown that the fast food industry is very competitive. A large number of companies offering substitute products is responsible for the high degree of competitive rivalry in the market. The competitive landscape implies that industry players such as Vapiano should focus on differentiating their products and services. The differentiation can occur regarding price, quality and customer service.

Reference List

Atul, S. 2017. Restaurant Industry Performance and the JHFM Index. The Journal of Hospitality Financial Management, 25(1), pp. 1-3.

Brotherton, B. 2012. International Hospitality Industry. London: Routledge.

Burke, A., Stel, A. and Thurik, R. 2010. Blue Ocean vs. five forces. Harvard Business Review, 88(5), pp. 28-29.

Dobbs, M. 2014. Guidelines for applying Porters five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp. 32-45.

Regina, S. B. and Durocher, J. 2011. Successful Restaurant Design. New York: John Wiley & Sons.

Sarin, S. 2014. Market Segmentation and Targeting. Boston: Wiley International Encyclopedia of Marketing.

Wedel, M. and Kamakura, W. A. 2010. Market Segmentation: Conceptual and Methodological Foundations. New York: Springer Science & Business Media.