Craft Beer Industry
The industry’s primary aim is to make a profit through the use of an effective strategy that helps in influencing the target audience. The competitive business environment is experiencing changes in the competition that occur at a fast rate. This poses a challenge in maintaining business operability level. The craft beer industry involves various inputs and a process for preparation. The standard inputs include labor force, equipment, and distribution of beer that raises the production costs. Therefore, Porter’s five forces model helps in conducting an effective analysis that helps prevent losses caused by high costs of operations (Lewis 2017).
The Craft beer industry is also competitive; thus, consumers have a wide range of beer brands variety to choose from. In return, this creates new opportunities for beer buyers. The craft breweries owner has a responsibility to address the difficulties. An excellent example of the problems is strategies to deal with rival competitors in the market. The five forces model provides a helpful tool for dealing with various threats. Practical application of the five forces model will ensure proper maintenance of high levels in market shares. It will result in the beer companies operating in a competitive business environment.
Porter’s Five Force Model
Porter’s theory was developed in 1979 by Michael Porter as a simple framework for evaluating and assessing the strength of competition and its business position. The theory’s basis is on the concept of five forces that help identify where power lies within an organization. The knowledge helps understand the strengths of the current competitive position of an organization. The Five Force Model is widely utilized in the analysis of the industrial structure and the corporate structure of a company. The model is used to measure the attractiveness, competition intensity, and profitability of the market. It also helps in identifying the strength business position that an organization is likely to look into. Strategists use the five forces model of Michael Porter for understanding the potential profitability of new products and services (Lewis 2017). The five forces include supplier power, buyer power, competitive rivalry, the threat of substitution, and new entry threat.
Buyer’s Bargaining Power
The aspect of bargaining power plays a crucial role in the prices of the beer industry. Several factors dictate to which product buyers’ bargain. For instance, a marketplace dominated by a certain segment of customers consuming a specific product results in high bargaining power. The parties involved in bargaining are the customers and suppliers. The group with increased bargaining power gets more vital in the market. The buyer power affects competition in the craft beer industry. Buyers can drive prices lower. It should be understood that beer is not a necessity but rather a luxury. Therefore, buyers get a high bargaining power that determines beer buyers’ levels to influence the industry (Lewis 2017).
The focus of the owners of craft breweries needs on strategies that can attract customers. Some of the practices will include power strategies of advertising the products and significant investment in the marketing sector. The other approach is the advancement of the quality of products and diversity. It is essential in establishing an effective relationship between producers and consumers. Customers of beer are known to have different tastes and preferences. Therefore, providing a wide variety of beers will be an effective strategy. The beers should have different packaging styles, tastes, prices, and production techniques.
Suppliers’ Bargaining Power
The bargaining power of suppliers also influences the prices of inputs in the craft industry. The overall prices include equipment, raw materials, utility expenses, wages, and others. The products that result from the brewing process are sophisticated but expensive. However, it is possible to lower the bargaining power of the craft beer supplier. The primary aim is to achieve increased profitability once the logistics costs have been met (Lewis 2017). Therefore, the use of strategies, such as implementing innovation and alternative sources, will be effective. The other practice involves balancing price levels for both inputs and outputs to control the supplier’s bargaining power. The overall outcome is establishing a profitable business that will fulfill the needs of buyers and sellers.
The beer industry, just as other industries, is faced with specific industrial threats. As identified by Michael Porter, the common ones are associated with new products and new entrants in the market. Overcoming the threats leads to the successful growth of the business.
The Threat of New Entrants
The craft beer industry is characterized by high profitability, making many people develop an interest. The businessmen develop a strong desire to share profits in the market. The driving force leads them to join the call. The beer company’s establishment involves high initial costs due to investments requirement in machinery and various equipment used in production (Lewis 2017). The government also impose the different condition that results in financial losses. Some of the governmental requirements include quality certificates, alcohol-selling licenses, environmentally sustainable production equipment. Therefore, it is clear that entering the market is a complex process involving high costs. It serves as the barrier in the establishment of craft breweries by new market entrants.
However, a well-financed beer company’s entrance into the industry will block the craft breweries’ development locally. The existing beer companies are required to apply cost switching strategies that are targeted at attracting more customers. The reduction of input costs will help lowers the final product price to make it more appealing to buyers (Lewis 2017). This explains why most consumers prefer local firms to foreign beer companies. The most effective strategy is a lower-cost strategy that maintains business operations.
The Threat of New Products
The aspect of new products in the market is critical to the craft beer industry. It is straightforward for the consumer to differentiate the qualities of the beer. Therefore, they are free to switch from one product to another, depending on their preference. Consequently, companies must focus on the development of unique products. Sometimes the development of new types of people and bottle designs is accelerated by the desire to capitalize on the weaknesses of existing products. The strategy should take into consideration a product that any substitute cannot replace. The best and effective way of dealing with the threat of new products is through establishing a balance between product quality and the right price. The beer company is required to create an original beverage (Lewis 2017). The main requirements include affordable prices, flavor qualities, and an effective campaign for marketing. It is crucial in gaining increased customer’s favor and increase in gains resulting from losses.
The buyer’s ability to switch between competing brands’ preferences results in rivalry among various competitors in the beer market. Therefore, firms must establish a strong beer brand in the market to continue operating in a highly competitive environment. Consequently, it develops products that meet quality standards and provide customers with the highest spectrum of flavors and tastes. Innovative production offers a helpful tool to establish competitive advantages in the beer industry (Lewis 2017). Therefore, it is likely to have an effect of reduced initial costs. The funds usually change flow with the Craft beer industry, thus, providing more opportunities.
A good example is lowering production costs, thus allowing the business owner to invest more money in promotional activities. The use of persuasive advertising presents an essential tool for attracting more customers. Therefore, it plays a crucial role in overcoming industry rivalry. The beer companies should take into consideration that was dealing with competitors should only involve ethical practices. The use of unhealthy ways in the competition is likely to result in enormous craft beer industry losses.
Therefore, it is essential to note that the craft beer industry is profitable, but various obstacles cause a massive threat to the beer industries’ success. The analysis of Michael Porter’s five sources provides an excellent way of developing a powerful strategy for a company. The model effectively analyses the potential problems and the advantages resulting from the beer industry. Porter’s five forces model’s application helps increase profits and prevent financial losses in the beer industries. The model plays a critical role in the success of a business establishment (Lewis 2017). Low, competitive rivalry leads to greater power in charging higher prices and setting terms for achieving higher profits and sales.
Market Position Mapping and Strategic Groups
The strategic institution map would vicinity micro and Nano bottling works with restricted or a close-by distribution and occupies excellent capacity or a high cost. To a greater extent, global producers have international distribution and a slight pricing role, which is low. The regional manufacturers might, therefore, be at countrywide degree and close by in the process of offering costs inside high assortment and slight. The most dominant and acceptable competitors are the global producers as they might not be found. At this point, the best in a single particular vicinity. The worst positions involve a case where the micro and Nano distilleries are concerned with a smaller market objective.
The micro and Nano distilleries are involved in both slim and close by distribution. The Nano and micro-breweries neighborhood is engaged in excessive excellent position and cost that generally ranges from better-than-expected, pleasant, or satisfactory grades. The worldwide producers typically occupy occasional and global distribution to moderate pricing models provided that the portfolio list of manufacturers is presented. The close-by manufacturers are positioned in terms of both national and regional degree, even as giving the costs that range from moderate to excessive reach (Lewis 2017).
It is also identified that the worldwide producers exist dominantly as rivals through presenting a considerable threat involving both the local and neighborhood manufacturers. As found inside the case, the regional manufacturers kept up the achievements using both a regional affinity and the distribution such as the Boston beer or through the concurrences that involves large sellers such as the craft brew industry. The college students should also identify how smaller beer producers present dangers to one another, considering they dissolve the close by the niche that exists within the most feasible exit strategy for smaller beer producers in procurement (Lewis 2017). From the two cases, Nano and micro-breweries are indeed in a narrow local distribution since they have smaller capital budgets that cannot sustain distribution. Therefore, the Nano distributors are likely to make attempts to complete the Global producers through price competition. The producers cannot compete in terms of quality because Global brands produce better quality.
Therefore, it can be concluded that the strategic group map of the craft beer industry looks similar to the airline industry. The groups that fall in the best position are the more influential groups considering that they have already established themselves in the industry. On the other hand, the groups that fall in the worst part are the smaller companies because they are likely to drop out of the industry despite being more profitable.
Strategic Issues in Craft Brewers and Effects
The Craft beer industry’s joint strategic issues include quality control and consistency, raising funds, marketing challenges, and building a talented team. Scaling pf business operation is difficult without funds. Therefore, funding and investment have increasingly become attractive in the craft beer industries. The funding experiences various pitfalls that are associated with the routes to funding that needs to be navigated. The use of the suitable approach investment is likely to take a sole trader that involves small local positions moving to national breweries within a few months (Lewis 2017).
It is tough to get beers into the shelves, especially with less known breweries. Fortunately, growth in the market for craft beer, shops, and bars expands its operations to include more independent brews. The wide choice enables the brewers to jump through several hoops in getting their beers in front of the buyers. The bars, pubs, and distributors must understand that beer needs to stand out from the rest. The focus should, therefore, be whether the consumers will like it. For instance, most consumers associate craft drinks with having a unique flavor. The strategic issue involves the challenges in selling tactics changing and the difficulties of working with complex sales. The success is likely to emerge from the building of buyer relationships.
The other strategic challenge is the inability of some small micro-breweries to have enough employees to help in bottling and labeling. Therefore, the only option is soliciting volunteers using social media. Thus, the brewery needs to gain exposure through hosting events at the local restaurants, such as tap-takeovers that feature its beers on draft. Upon engaging enough customers, the local restaurants were carried away to purchasing more beer from the brewery distributor. Future viability could be significantly affected by several variables such as tight retail competition, raw materials shortages, and price-sensitive consumers.
In micro-breweries and regional breweries, the opportunity for acquiring other breweries as a distribution and synergies method was seized. It also mitigated the levels of direct competition. The competitive landscape became complicated, thus, leading to the various fluctuations in prices of raw materials. The sudden and sporadic shortage has reduced industrial growth and consequential effects on brewery production stability, especially smaller operations that cannot make bulk purchases and outbidding larger competitors (Lewis 2017). The growth in the desire of consumers for craft beers has the effect of attracting more entrants. It also encourages larger breweries to seek the successful acquisition of beer brands for the craft industry.
Lewis, R. (2017) Porter’s Five Forces of competitive advantage: Launceston University College Press.