Monday, June 4, 2012

Business Strategy

Porter’s Five Forces Model

Bargaining Power of Customers 
  • Home Depot limits its bargaining power by putting everything a customer needs on the
  • So the demand for different products or control of the price of the product is low.
  • They target three different customers which are do it yourself customers, buy it yourself customers, and professional contractors. 

Bargaining Power Of Supplier
  • Home Depot has about 12,000 suppliers in which it keeps good relationships with.
  • Home Depot is very much in control of its bargaining power with it suppliers.
  • Home Depot can buy in bulk from suppliers that they get the best discounts, in which then the suppliers don’t really make money.
  • They eliminate the third party which are the distributing centers because they have control of its merchandising inventory. 

Threat Of New Entrants

  • There isn’t that much threat of new entrants because Home Depot and Lowe’s have so much advantage over any new entrant in this industry.
  • Home Depot’s advantages is it’s brand name, a big variety of products, it’s big economies of scale, and its cost leadership quality.
  • So for new entrants its very difficult because all the barriers they have to go through like how home depot and loew’s have influence over suppliers and distributors, their ability to be able to price cut on products, and their brand names. 

Threat of Substitutes 

  • There really is not a true threat of substitutes for Home Depot in which it’s products are home improvement supplies.
  • The reason why is because Home Depot has very low prices and many varieties of products and services.
  • One of Home Depot’s biggest rivals in this industry is Lowe’s in which both over very similar products and services. 
  • Lowe’s is the second largest competitor to Home Depot.
  • Home Depot compete’s by buying and taking over stores to expand their company.
  • Home Depot is not doing so well, sales are down and Lowe’s is becoming more and more profitable.
  • Lowe’s is is similar to Home Depot but are different in that Lowe’s target more of the women customers and Home depot target more men customers. 
Competitive Strategy 
Home depot is using the Best Cost Provider Strategy that provides low prices and quality products to customers. Home Depot want to deliver supportable and profitable growth by extending business and expanding their markets. Home Depot has a saying which is “ You Can Do It. We can Help”, and it means as it creates customer closeness and a collaborative structure between its customers and employees, it can also provide a long-term competitive advantage. 


  1. If you read Chapter 3, you can see the proper terms for the strategy (low cost/industry wide).

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