Porter's Five Forces Analysis refers to a strategic tool used in management to analyze a firm and comprehend fundamental levers of profitability in a specific industry. Pfizer Inc. managers can employ Porter Five Forces to understand the way the five competitive forces affect profitability and device a strategy for improving the company's competitive advantage as well as long-term profitability in drug manufacturing organizations. Pfizer Pharmaceuticals is among the major firms in the sector of drug manufacturers. For a long time, the firm has redefined the way of conducting business in healthcare and is listed at New York Stock Exchange having a market cap 198.02B USD. The purpose of the paper is to discuss the threats facing Pfizer pharmaceuticals using the Five Forces Models. The paper goes on to give a few solutions that can be employed to overcome the risks.
Pfizer Inc. Porter Five (5) Forces Analysis
In Michael Porter's revolutionary article "Five Forces that Shape Strategy," he identified five forces that have significant impact on the profitability of a firm in its industry (Leker & Bauer, 2017). The analysis of these five forces today in the corporate world is referred to as Porter Five Forces Analysis as well. This strategy is a holistic approach framework that involved strategic decisions away from just examining the current competition. The model concentrates on how Pfizer can develop a sustainable competitive advantage manufacturer of drugs in the industry.
Managers of this company cannot implement Porter Five Forces alone to build a strategic position within the major producers of drug manufacturing, but it can as well explore profitable opportunities in the entire healthcare sector. The five forces include:
If the competition among the existing companies in the pharmaceutical industry is intense, then it is likely to drive down the cost of goods and lower the overall profitability of the industry. Pfizer Inc. works in a Drug manufacturing industry that is extremely competitive. This rivalry does take a toll on the general long-term organization's profitability. Pfizer Inc. can tackle this issue by considering the following strategies:
- Through building a sustainable differentiation.
- By structuring scale to compete better (Molloy & Johnson, 2016).
- Merging or teaming up with rivals to enlarge the market size instead of competition for limited markets.
Potential entrants into the industry
New entrants in the drug manufacturing industry bring innovations as well as new ways of doing things. Besides, the new firms put pressure on Pfizer Inc (Lindstone & MacLennan, 2017). Through reduced pricing strategies, lowering costs, and offering new value propositions to the consumers. Pfizer Pharmaceuticals should manage all the problems and device effective barriers to protect its competitive age. This company can tackle such challenges by innovating new goods and services because they not only bring consumers to the fold but also offer old customers a motive to buy the firm's products.
Additionally, Pfizer can build economies of scale so that it can reduce the fixed price per unit. The company should as well build capacities and spend funds on research and development. New entrants have reduced chances of entering a dynamic industry where reputable players such as Pfizer continuously define the standards regularly. It reduces the window of huge profits significantly for the new organizations hence discouraging fresh players in the industry.
Substitute Products or Services
When the new products or services meet the needs of customers in distinct ways, industry profitability suffers. For instance, services such as Google Drive and Dropbox are a substitute for storage hardware drives. The substitute product posses an adverse threat if it provides a value proposition that is exclusively variable from current offerings of the industry. Besides, comprehending the basic need of the customer rather than whatever the consumer purchases will help solve the issue. Furthermore, Pfizer should increase the switching cost for the buyers (Roschangar & Colberg, 2018).
Bargaining Power of Suppliers
Close to all the firms in the drug manufacturing industries purchase their raw material from many suppliers. Suppliers in leading positions can lower the margins Pfizer can earn in the market. Dominant suppliers in the healthcare sector use their bargaining power to extract higher costs from the companies in this industry. The general impact of more top supplier negotiating power is that it reduces the overall productivity of major drug manufacturers. Pfizer can handle the bargaining power of suppliers by building effective supply chain with various suppliers.
In addition, the firm can experiment with product designs using distinct materials so that if the price of a single raw material elevates, the company then shifts to another. Moreover, the company should develop dedicated suppliers whose trade depends upon it. One of the lessons Pfizer pharmaceuticals can learn from Nike and Wall-Mart is the manner in which these organizations develop third-party producers, whose business only depends on them, thus forming a situation where these third-party producers have a lower bargaining power compared to the two firms (Gassmann et al., 2018).
Bargaining Power of Buyers
Buyers usually demand a lot. They often want to purchase the best products available by paying the least price as possible. This condition puts Pfizer's profitability in the long run under significant pressure (Frynas &Mellahi, 2015). The lesser or more powerful the customer base of Pfizer pharmaceuticals is, the higher the negotiating power of the consumers and their ability to look for rising discounts and offers.
The company can tackle the bargaining power of buyers through developing a vast customer base since it is crucial in several ways including reducing the bargaining power of the purchasers and providing a chance to the organization to straighten its sales as well as production process (Roschangar & Colberg, 2018). Besides, the firm could innovate new products rapidly because customers usually seek offerings and discounts on established goods and services, therefore, if Pfizer Inc. keeps developing fresh products, it can limit the negotiating power of purchasers. Moreover, new products will decrease the defection of existing consumers of the firm to its rivals.
Pfizer pharmaceuticals faces several threats as analyzed using Porter Five Forces. The paper describes the forces or threats distinctively such as industry competitors, potential entrants to the industry, substitute and complement goods and services, bargaining power of suppliers, and the bargaining power of buyers. Besides, several ways that could help Pfizer overcome or outdo these threats are described. These strategies are meant to support the company's managers ensure they achieve maximum profitability in the drug manufacturing industry.
Frynas, J. G., & Mellahi, K. (2015). Global strategic management. Oxford University Press, USA.
Leker, J., & Bauer, M. (2017). Strategic Analysis: Understanding the Strategic Environment of the Firm. Business Chemistry: How to Build and Sustain Thriving Businesses in the Chemical Industry, 59-107.
Lidstone, J., & MacLennan, J. (2017). Marketing planning for the pharmaceutical industry. Routledge.
Gassmann, O., Schuhmacher, A., von Zedtwitz, M., & Reepmeyer, G. (2018). The Industry Challenge: Who Would Want to Be in This Business?. In Leading Pharmaceutical Innovation (pp. 17-39). Springer, Cham.
Molloy, P. L., & Johnson, L. W. (2016). Biotechnology, a Strategic Planning Orphan: Towards an Effective Strategy Framework for Biotechnology Firms. Journal of Commercial Biotechnology, 22(3).
Roschangar, F., & Colberg, J. (2018). Green Chemistry Metrics. Green Techniques for Organic Synthesis and Medicinal Chemistry, 1-19.
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