Porter's Five-Forces Model
Porter's five forces model is a way of evaluating rival firms competing in the same industry by analizing five main aspects as shown in the graph.
Retrieved from: Chartered Global Management Accountant
2.6.1 Rivalry among competing firms( Relation and competition between firms in ther aims to attract customers)
Rivalry among competing firms is high given the fact that all book sellers offer the same kind of service and product at similar prices. The transition towards online bookstores is lowering the barriers to enter the market, making rivalry more intense. Some companies are trying to offer discount deals in order to gain marketshare. Libreria Nacional has annual sales of 49.122 million COP while smaller competitors such as Books and Books has less than half. By evaluating their net profit we can see that they represent only around 40% of their sales, meaning that their operating costs are high and margins are low, increasing rivalry. As booksellers in Colombia are private companies there’s no information about marketshare in the industry.(50, 51)
2.6.2 Potential entry of new competitors(How easy it is for new firms to start competing in an industry)
In a globalized era, it's becoming easier everyday for multinational firms to enter the local market. As the book sector transitions towards online sales it is even easier as any firm with an online platform and international shipping can start competing. Also, FTAs negotiated by the local government are facilitating book imports.
Another factor to consider is how huge book sellers are starting to transition to a on demand service where they define alliances with digital printers so customers can ask for books that are not available on inventory and within three days they deliver the book.
At last, we need to evaluate the tendency towards digital reading which is expected to grow with the entrance of amazon in the local market.(45)
By reducing inventories, producing digital content and with low import rates it becomes easier and less costly for new firms to start competing in the colombian market.
2.6.3 Potential development of substitute products(The appearance of new products that could replace yours)
The book industry is safe from the appearance of substitute products as there is no technology for now that could substitute reading content. what is happening in the industry is a transition towards digital content but most book sellers are adapting to this technology and shift in people's preferences.
Hard copies still have room in a digital era. Studies are showing that the reading experience is completely different and that readers don't fully transition from one format to another but mix them depending on comforts. It is easier to travel with a kindle than with a big book.(46)
2.6.4 Bargaining power of suppliers(Position of strenght or weakness from which suppliers negotiate agreements with their customers)
As there are no subtitute products and every editorial house has the rights for different types of content their bargaining power is high. Meaning that book sellers need to maintain a close and cooperative relation with editorial houses in order to get the latest content fast and at reasonable prices. The latest tendency to reduce inventory by making alliances with editorials and digital printers show a good relationship between book sellers and suppliers within the sector.(45)
2.6.5 Bargaining power of costumers(Position of strenght or weakness from which customers can demand or make certain requests)
The bargaining power of customers is relatively low as they can't switch to other products. The existence of many sellers could highten their power but the prices and services within the industry are mostly standard.
After evaluating the five forces we can conclude that it is a highly competed market but firms are rather stable in they way they operate so by analyzing strength and weaknesses we could develop a competitive advantage, making it profitable to compete in the market.