Market Definition The home appliance industry includes a laundry list of products, from washers and dryers, dishwashers, and ovens to garbage disposals, air conditioners, and water heaters GE must compete on a global level
Market Concentration - Number of sellers competing - Stealing profits from top twenty
Government Regulations - Specific standards may make it difficult for them to compete. - EPA Energy Star program: companies manufacture appliances according to strict environmental standards, lowering greenhouse gas emissions, and in return receive the Energy Star label.
Manufacturing Curve - Takes time to develop the leanest processes - Low foreign labor cost
Substitutes Immediate Rival - Bosch Bosch’s 800 Plus dishwasher is “the quietest dishwasher in North America” at 38 dBA and GE has developed a substitute that is just as quiet.
Complements The housing industry – the two are usually purchased together Demand for home appliances will increase when the housing market is good and decrease when it falters. New housing is more often the reason for purchase than a customer simply replacing an old appliance.
Concentration of Suppliers/Substitutes Many inputs into appliance manufacturing Recent shift to more concentrated industries Fewer, larger firms leads to more power for suppliers Fewer firms also means fewer substitutes Importance of Input Materials Appliances made up of 60% steel
Forward Integration and Price Discrimination Costly upfront investment makes forward integration unlikely Manufacturers make up a large portion of suppliers’ business Places some power back in hands of the manufacturers and reduces price discrimination
Concentration of Buyers Overall industry sells to individuals, these are “price-takers” Large retailers have some power due to bulk purchases Overall market price stays intact Large Volume Purchases Discounts are generally given to large purchases Big purchases give suppliers some “wiggle room” when it comes to pricing
Substitutes/Elasticity No real substitutes Demand is inelastic to both price and household income Lawrence Berkeley National Laboratory Gives appliance manufacturers flexibility when pricing goods Backward Integration Large upfront costs Large economies of scale and scope Wide variety of products sold by retailers would make profitability of vertical integration tough
Conclusion Key factors that affect a firm’s profitability: Volatility of steel prices Threat of lower-cost manufacturing Possibility of capturing expanding consumer markets globally in India and China