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Porters five forces in residential construction industry

Threat from Substitute Products Rivalry among the existing players. Porter Five Forces is a holistic strategy framework that took strategic decision away from just analyzing the present competition. Managers at KB Home can not only use Porter Five Forces to develop a strategic position with in Residential Construction industry but also can explore profitable opportunities in whole Industrial Goods sector. KB Home has to manage all these challenges and build effective barriers to safeguard its competitive edge.

By building economies of scale so that it can lower the fixed cost per unit.

  1. By increasing the switching cost for the customers.
  2. Customers often seek discounts and offerings on established products so if KB Home keep on coming up with new products then it can limit the bargaining power of buyers. It will reduce the bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its sales and production process.
  3. KB Home has to manage all these challenges and build effective barriers to safeguard its competitive edge.

Building capacities and spending money on research and development. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry.

Bargaining Power of Suppliers All most all the companies in the Residential Construction industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins KB Home can earn in the market.

What are Porter Five (5) Forces

Powerful suppliers in Industrial Goods sector use their negotiating power to extract higher prices from the firms in Residential Construction field.

The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Residential Construction. By experimenting with product designs using different materials so that if the prices go up of one raw material then company can shift to another.

Developing dedicated suppliers whose business depends upon the firm. One of the lessons KB Home can learn from Wal-Mart and Nike is how these companies developed third party manufacturers whose business solely depends on them thus creating a scenario where these third party manufacturers have significantly less bargaining power compare to Wal-Mart and Nike.

Bargaining Power of Buyers Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on KB Home profitability in the long run. The smaller and more powerful the customer base is of KB Home the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.

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This will be helpful in two ways. It will reduce the bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its sales and production process. By rapidly innovating new products. Customers often seek discounts and offerings on established products so if KB Home keep on coming up with new products then it can limit the bargaining power of buyers. New products will also reduce the defection of existing customers of KB Home to its competitors.

Threats of Substitute Products or Services When a new product or service meets a similar customer needs in different ways, industry profitability suffers. For example services like Dropbox and Google Drive are substitute to storage hardware drives. The threat of a substitute product or service is high if it offers a value proposition that is uniquely different from present offerings of the industry.

By understanding the core need of the customer rather than what the customer is buying. By increasing the switching cost for the customers.

  1. Implications of Porter Five Forces on KB Home By analyzing all the five competitive forces KB Home strategists can gain a complete picture of what impacts the profitability of the organization in Residential Construction industry. The smaller and more powerful the customer base is of KB Home the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.
  2. By building economies of scale so that it can lower the fixed cost per unit. By understanding the core need of the customer rather than what the customer is buying.
  3. They can identify game changing trends early on and can swiftly respond to exploit the emerging opportunity.
  4. By rapidly innovating new products. KB Home operates in a very competitive Residential Construction industry.
  5. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry.

Rivalry among the Existing Competitors If the rivalry among the existing players in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. KB Home operates in a very competitive Residential Construction industry.

KB Home Porter Five Forces Analysis

This competition does take toll on the overall long term profitability of the organization. How KB Home can tackle Intense Rivalry among the Existing Competitors in Residential Construction industry By building a sustainable differentiation By building scale so that it can compete better Collaborating with competitors to increase the market size rather than just competing for small market.

Implications of Porter Five Forces on KB Home By analyzing all the five competitive forces KB Home strategists can gain a complete picture of what impacts the profitability of the organization in Residential Construction industry. They can identify game changing trends early on and can swiftly respond to exploit the emerging opportunity.