The five forces analysis applied to Nestle (based on the notes and article: The Five Competitive Forces That Shape Strategy) WU You 52639794
Threat of entry
New companies enter an industry bring new capacity and a desire to gain market share, which leverages existing capabilities and cash flows to shake up competition. It depends on height of entry barriers and on the reaction entrants can expect from incumbents.
The Nestle has a dominate position in nutrition and health product industry, which defect new entries strongly. Because the barriers to enter are really high: need advanced infant formula technics, which is one of the incumbents’ advantages * distributive brands nearly 6000 * need huge capital amount * customers’ preference to the familiar brand

The bargaining power of suppliers
Powerful suppliers capture more of the value for themselves by charging higer prices, limiting quality or services, or shifting costs to industry participants.
Nestle owns great power as the biggest supplier in the nutrition industry, for its * differentiation strategy works perfectly with oceans of most famous brand and products in nutrition and health area. * The switching cost in changing suppliers in nutrition industry are high because of the incumbency of Nestle * Nearly covering all the products in industry with facing little substitute or substitute not on the same level * Be able to credibly threaten to integrate forward into the industry

The bargaining power of buyers
The bargaining power of buyers is the power to force down prices or demand better quality and generally negotiate leverage to industry participants. However, the buyers in nutrition industry have small bargaining power. It’s resulting from: * Numberous buyers * small volume buying individually * the product’s are unstandardized but differentiate

The threat of substitutes
Substitutes play the same role as an industry’s product, whose existence limits an industry’s profit potential by placing a ceiling on prices. Nestle faces high threat of substitutes: * boycott infant formula arouses people’s attention to breast milk, which is the most powerful substitute * further processing of coco makes chocolate milk and other substitutes for people to taste * higher technology makes the price cheaper and substitute more attractive * buyers’ cost of switching to the substitute is low, which means just trying a new brand of milk

Rivalry among existing competitors
Eager to occupy more share of the market, different companies in the industry will have contending behaviors, which makes unavoidable competition between rivals. Nestle faces high rivalry among existing competitors: * large amount of producers, some of which are in the equal size and power, such as Maxwell, Dunkin’ Donuts and Starbucks in coffee industry * Exit barriers are high, since most of them are big public company with high costs and accumulative reputation * highly committed to the business and seek market leadership, especially after the poison infant formula affair