Porter's Five Forces for Car Service Industry

1. Prepared by:-
Chand Mohd
NITK Surathkal

2. Evolution of Porter's Five Forces
Model:
 Five forces is a framework for the industry analysis and
business strategy development developed by Michael
E. Porter of Harvard Business School in 1979. Michael
Porter is a professor at Harvard Business School and is
a leading authority on competitive strategy and
international competitiveness.
 Five forces uses concepts developing, Industrial
Organization (IO) economics to derive five forces that
determine the competitive intensity and therefore
attractiveness of a market. Attractiveness in this
context refers to the industry profitability.

3. Introduction:
 The Porter’s five forces tool is a simple but powerful
tool for understanding where power lies in a business
situation.
 This is useful because it helps understanding both the
strength of the current competitive position and
factors affecting the strategy development.

4. Industry
Rivalry
Threat of
New
Entrants
Bargaining
Power of
Buyers
Threat of
Substitutes
Bargaining
Power of
Suppliers

5. Threat of new entrants:
 The threat of new entrants is very high for the used car
sales and service industry. There are many existing and new
automobile service players are coming into the market.
 Take an example of all company owned automobile
players:- Maruti Service Centres, Hyundai Motor Service
Centres, General Motors Service Centres, Tata Motors
Service Centres, Ford India Service Stations.
 Take an example of some new players:- Carzcare,
Rescuefirst, Carnation.
 Non-automobile players are also coming in the used car
sales market like:- OLX, Quikr.

6. Continue…
 Some small players like the roadside workshops are
easy to establish anywhere at low cost with easily
available labor, raw materials, resources which can
lead to big players. For a new start-up no need to
invest huge capital, with the amount of 7Lac-10Lac one
can start his own service station.
 Franchise of other players is easily available with less
investment.
 Result: Threat of new entrants is HIGH, hence
Industry attractiveness is LOW.

7. Threat of substitutes:
 Substitutes for this service already existed in the
market from small players to big players. Most of the
car service provider are giving the same services which
one is providing to defend their market share in terms
of volume or other.
 From a customer perspective, the alternative option
will be either to go for nearby service centre or to
contact other options which are easily available for
their location. The product used are appear different
but can satisfy the same need as another product. In
the car industry typically there are many cars they are
similar just look at any mid-range Toyota and you can
easily find a very similar Nissan, Honda or Mazda.

8. Continue…
 Other substitutes include own brand service centre. Mostly
people prefer their own brand service centre where they
can use many services as providing by the company itself
under warranty scheme or under extended warranty
scheme.
 Result: Threat of substitutes is HIGH, hence Industry
attractiveness is LOW.

9. Bargaining power of suppliers:
 For the players like company owned the bargaining power
of suppliers is less as it can get constant supply of spare
parts including OEM parts (Vehicle manufacturer’s brand)
and OES parts (reputed brands of component
manufacturer’s either domestic or international, supplying
to vehicle manufactures or aftermarket).
 For other players the bargaining power of suppliers is
moderate. Many ancillary industries are opening up near
automobile manufacturers or service providers realizing
that there are lot of opportunities in automobile industry;
hence there are lot of suppliers in this industry.
 Every company has the partners in every field like petrol
and diesel oils (HP, Mobil 1), Paints (AkzoNobel, Glasurit),
Batteries (Exide), Car Insurance(Bajaj, ICICI, Bharti AVA,
Tata AIG).

10. Continue…
 When there are many suppliers in an industry,
they do not have much power due to that industry
manufactures can easily switch to another supplier
if it is necessary.
 Result: Bargaining power of suppliers is
MEDIUM, hence Industry attractiveness is
MODERATE.

11. Bargaining power of buyers:
 The bargaining power of industry affects industry
profitability by their ability to hold out for lower price,
higher quality and better price. In automobile and car
service industry the bargaining power of the buyers is
moderately high.
 There are various brands and service centres are
available to choose from nowadays and the buyers
have low switching cost due to the various brands with
similar specs and price with competitive marketing.

12. Continue…
 The other centres are offering and providing many
attractive membership schemes like Extended
Warranty Program for cars out of Manufacture
warranty, Privilege Card Program and also providing
offers/packages for specific model of car. Hence the
bargaining power of buyers is high.
 Result: Bargaining power of buyers is HIGH, hence
Industry attractiveness is LOW.

13. Industry rivalry:
 Automobile industry in India is growing very rapidly
with all major players having their service stations and
sales in India. This is a major threat to existing Indian
automobile players.
 The industry rivalry is very intense from competitors
which are company owned like Maruti, Hyundai, Tata
Motors, Mahindra, TVS having a good dominance in
their service ability.
 Result: Threat from rivals is HIGH, hence Industry
attractiveness is LOW.