The Toy Industry: An Analysis Of Porter's Five Forces Model

Porter’s Five Forces Model establishes a unique methodology in examining the competitive climates in each known industry by analyzing five factors that affect the positioning of every firm. The first factor, buyer bargaining power, determines whether consumers have enough power to expend influence within the industry to stimulate price reductions. There are different types of buyers to consider when analyzing buyer bargaining power, namely retailers who purchase toys from toy suppliers and end consumers that purchase toys from the retailers. Retailer concentration in the market has a dominant presence, which allows large retailers like Wal-Mart and Target, the capability and power to command lower prices from Hasbro and Mattel. Although this …show more content…
Yet, many new entrants probably will not be able to compete on an equal footing alongside the larger firms Mattel and Hasbro because the fixed costs are rather excessive. Establishing a brand from the ground up requires substantial startup costs, not to mention advertising and research and development costs. These costs can act as an obstacle for new entrants who want to join the industry. However, firms looking to enter the industry on a smaller extent by targeting a corner of the niche market will have better odds of entry but will still have to contend with the larger firms at some point. Existing toy firms have cultivated strong relationships and brand loyalty with buyers and suppliers alike. Larger firms have the advantage of economies of scale to work in their favor but they are not untouchable entities. All firms have to deal with tough legal government safety regulations, which may be viewed as a deterrent to …show more content…
Because industry growth has already abated, firms must compete for a share of the market. Consumers are reasonably price sensitive, which means the producers face larger price competition. Innovation is very important because of the relatively short product life cycles; retailers must continuously accommodate quick changes in the market. Consumers have a propensity to go back and forth between products and sellers since the switching costs are normally absent or minimal; this often increases competition in the industry. For instance, if a consumer buys an item from one retailer but later decides to purchase a similar item from a different retailer the shift will not cost the consumer anything. This is why firms engage in price competition. Although, end consumer purchase most toys through traditional brick and mortar retailers, the advent of the internet and ecommerce has attracted more