Porter’s Five Force Analysis Model and Value Chain analysis

This article discusses Porter’s Five Force Analysis Model and Value Chain analysis in the context of Sainsbury, a retail company in the UK. It explores the level of competition and profitability in the industry and analyzes the company’s primary and supportive activities.

Management Information
and Technology

Table of Contents
INTRODUCTION...............................................................................................................................3
Porter’s Five Force Analysis Model..................................................................................................4
Porter’s Value Chain analysis............................................................................................................7
Reflection........................................................................................................................................11
REFERENCES..................................................................................................................................13

INTRODUCTION
About Sainsbury
Sainsbury company is a public limited company that operates its business in retail industry
was founded in 1869, 151 years ago by John James Sainsbury in Holborn, London, United
Kingdom. It raises meets its capital requirement by listing its stock on London stock
exchange to offer to public for subscription. It is second largest chain of supermarket that
operates its business in UK with market share of approx. 16.0% (Hunt and Wheeler, 2017). It
operates its business in retail industry offering wide varieties of options to its customers from
clothing, food, electronic equipment’s to various financial services. Company to expand its
market share, profitability and satisfy needs of customers effective divided its operation into
three division: Sainsbury Banks, Sainsburys Argos and Sainsburys supermarket. In 1922
largest Sainsburys was one of the largest retailers but Tesco and Asda two competitors
overtook Sainsbury in 1995 but it regains second market position in January 2014. Sainsburys
has generated 29.007 billion of revenue and net income approx. 219 million in 2019 (Woo,
2018). There are 116400 employees in the company that operates various functioned for
achievement of common objectives. Head office of Sainsburys is situated in Holborn circus,
Sainsburys support centre. It has approx. 1415 stores that offers products in hypermarket,
supermarket and convince shop to attract large number of customers for achievement of
firm’s objectives.
History of Sainsburys
It was first started by John James Sainsburys and his wife as a retailer of fresh food in 1869,
but then they decided to expand business by introducing groceries products such as sugar and
tea. John Sainsbury's was able to increases its profitability and sales by satisfying basic
requirement of customers and using innovative marketing strategies. It stated that company
provide qualitative products at lower price to attract new customers. John Sainsburys to gain
differentiate position in use another strategy that is a high cast iron board to identify
Sainsburys store from a distance. Dairy, bacon, cooked meats are various department in each
shop of Sainsburys and it also provides few cars to provide delivery of products to customers
at their doorsteps. But in 1928 John Sainsburys died and there are 128 shops and his wish was
to keep shop well lit so his brother John Benjamin Sainsburys decide to run with partnership
with his father (Gemfair and Summit, 2018). The firm grew and maintain its leadership
position by maintaining cleanness in stores and quality of products and services of company.

But in 2016 it was taken over by Home retailer group for £1.4bn and expand its multi-
channel strategies, online presence to meet continuous changing needs of customers. Many
job were also cut and reorganized in 2016 by Sainsburys to reduce cost of production. Thus,
it grows and develop its business by reconstructing multi-channel to remove weakness of
decline of business in 1992- 1998 that result in reducing number of job in company.
Product and services
Sainsburys deals in varieties of product and services to satisfy needs of each and every
customer in the industry for achievement of company objectives. It provides product ranging
from home, personal care, food, electronic to financial services to cater needs of each
individual in the society with number of retail shop in UK. It also offers such products and
services through its own website to attract wide number of customers at reasonable cost.
Porter’s Five Force Analysis Model
Porter five forces refers as the business analysis model which supports to analyse
intensity of competition and its profitability in certain organization. It is profitable tool which
is basically used by several organization when they initiate new business or enter into
emerging market (Wee, 2017). This model states that competition not only occurs through
competitors but also it is dependent on fives forces such as threat of new entrants, bargaining
power of suppliers, bargaining power of buyers, threats of substitute products or services and
existing rivalry industry. These forces define level of competition and its profitability of an
organization. Sainsbury is a super market company which offers wide variety products to
customers across the world. Sainsbury applies porter’s five forces model to know about level
of competitions and its profitability in company. It is described below:
Power of buyers (High):
Sainsbury is supermarket company which offers wide variety products i.e. food item
and non-food item. As similar products are offered by other supermarket companies such as
Tesco, Asda, Aldi and Morrisons at related costs. So, Sainsbury’s customers bargaining
power becomes high due to availability of others organization which offers similar product
on different price range. Additionally, it becomes easy for customers to switch Sainsbury’s
company to another rival when they offer product at high price. Prices of product decreases
due to similar products as result it enhances customer’s power to select between competitor
offer in similar price range.

Power of Suppliers (Low):
This force gives positive impact on Sainsbury because there are highly exitance of
many suppliers in the supermarket retail industry that automatically lower bargaining power
of suppliers in retail market. So non-compliment suppliers can easily replace with other
supplier’s that gives power to Sainsbury to get products or their services at lowest price that
directly improves profit margin on products. Overall organization enables to achieve high
profitability within company by recruiting desirable suppliers for product supplying.
Threats of substitutes (Low)
Sainsbury comes in 2nd position as a largest supermarket company because it offers
wide variety of products such as groceries items and non-groceries item i.e. furniture,
electronics, clothing and others etc. these products are supplied by organization to customers.
Additionally, organization has goal to offers high quality products to customers at affordable
prices so that each type of customers easy to buy products (Nurlansa and Jati, 2016). Even
various organization offers similar products but customers gives values to price and quality of
products. So, threats of substitute are very low for both food item and non-food item.
Threats of new entry (Low)
Sainsbury has low threat of new entry because it has market share estimates 15.3% in
country which is quite high rather than small retails like Aldi, Lidl but low from other big
firms like Tesco, Asda. In simple word can say estimate out 69.8% of grocery market share is
maintained by the enlarge four supermarket companies (Simatupang, Piboonrungroj and
Williams, 2017). While other small supermarket companies like Aldi, Lidl, Iceland and
Waitrose are tried to gain large market share that shows there is no chance of other new
entrant. Apart from this, new entrant has to differentiate their product line in retail market.
Additionally, they have to offer low cost product along with high quality for attracting
customers. Where Aldi and Lidl already have applied low cost strategy and becomes low cost
leader in supermarket. Overall result is this, threat of new entrants is very less in UK’s
supermarket.
Competitive of rivalry (High):
Organization has high threat from four supermarket companies i.e. Tesco, Asda and
Morrisons. These companies offer similar products i.e. groceries, clothing, electronic,
financial services at similar cost which automatically make products switching cost into high

to low. Due to similar product has price war among supermarket companies. Sainsbury’s
also face high level competition from German stores i.e. Aldi and Lidl because they offer
their products on 40 % discount. Due to highly discount offers of these stores reduces market
share of Sainsbury’s. Asda also gives high competition to Sainsbury on the basis of products
price. Furthermore, Asda uses supply chain management for offering high quantity product to
customer.
Figure 1 Porter's Five Forces Model
Justification
On the basis of above discussion can be analysed that organization gets level
competition in UK retailing sector as well level of opportunity. Such as power of suppliers
gives positive impact on organization because they have opportunity to recruit new suppliers
when existing suppliers are non-compliment. Thus, organization easy to generate high profit
margin on products by recruiting large number of suppliers at low cost that automatically
improves products demand between customers. As same threats of substitute force give
positive impact on organization because they focus on innovation of products and their
services. The main reason behind of innovation is that to improv product quality that
automatically differentiate product profile from other competitive products. So, this force
also create opportunity for the Sainsbury (Varelas and Georgopoulos, 2017). Other is entry of
new threats which doesn’t give impact on organization performance. the main reason behind
is that, Sainsbury is the 2nd largest supermarket company in UK’s grocery retail market. Its
posse’s product portfolio and has high brand power like Tesco, Asda and Morrisons in global
market. When new company enters into UK’s supermarket that company should have high

brand power along with product portfolio. Additionally, organization have to offer good
quality products at lower cost which doesn’t possible for new company,
While competitive of rivalry force gives negative impact on organization because
Sainsbury doesn’t have good financial performance like other supermarket companies such as
Tesco, Asda. Due to low investment of funds in R&D department organization unable to
differentiate their products from other rivalry companies’ products. Product differentiation
and cost leadership strategy is quite good strategy which is implemented by Sainsbury to
promote their products but not doesn’t get high profit due to less investment. Organization
doesn’t have other source of growth except UK. Marketing strategy and technological
performance doesn’t good in Sainsbury, so threats of rival are too high. Threats of buyer
force also gives negative impact on organization because they keep similar products like
Sainsbury at similar price range that gives power to buyer for bargaining. Thus, it can be
illustrated by porter five forces that Sainsbury has high level of competition in UK’s
supermarket. There are some forces which leads profitability within organization.
Porter’s Value Chain analysis
Value chain framework can be defined as the sets of activities such as primary
activities and supportive activities that supports to examine specific activities. Even these
activities use by firm to enhance value and competitive advantage. Primary activities include
inbound logistics, operations, outbound logistics, marketing and sales and services. while
supportive activities are firm infrastructure, HRM, technology development and
procurements. this model impr0ves flow of material, information and finance within
organization. Sainsbury applies porter value chain analysis in their firm.
Primary activities:
Primary value chain activities are involved into various operations like inbound,
outbound, operation, marketing and sales. It creates value of products and supports
organization to take competitive advantage in business market. It plays important role from
raw material production to sell final product to targeted customers.
Inbound Logistics
It is also an essential activity which involves in receiving and storing raw materials by
the help of suppliers (Huang, 2019). In this activity suppliers plays crucial role because they
supply raw material from warehouses to manufacturing industry. Suppliers relationship is

must important because they involve overall activities such as receiving, storing and
distributing in industry. Sainsbury builds good relationship with suppliers because their
support is must important for receiving, storing and distributing inputs from one department
to other department within industry. Inbound logistic activities are important for Sainsbury
because it is product development phase that requires high focus of company. This phase
requires high focus on each aspect of conversion from raw material to final product.
Operation
It is another important activity which helps organization to convert raw material into
final product. This phase concludes both type operation i.e. manufacturing and service
operation. Operation activities refers as a machining, packing, assembling and testing. overall
activities are important for transforming input into output and sells it to customer. Operation
activities assist Sainsbury to improve productivity and quality of products. Thus, organization
easy to give value to customer by offering high quality of product. Additionally, organization
enables to achieve economic growth by creating set of competitive advantage.
Outbound Logistics
It is another activity which deals with delivering of final products or services to the
customer. Outbound logistic activities include material handling, warehousing, scheduling,
order processing, distribution and transportation which helps company to promote product
growth in business market (Chandra, 2016). It supports to explore competitive advantage
sources that can directly meet company from their objectives over the time. Sainsbury uses
outbound logistic for improving customer satisfaction that automatically enhances growth
opportunity in other market.
Marketing and sales
It is informational activity which is used by organization to inform customers and
consumers about products and their services in global market. It is most crucial activity for
organization because it supports organization to create brand loyalty among the customers by
claiming 100% guarantee on products. These activities also help to put pressure on
competitors. Marketing and sales activities includes sales force, advertising, promotional
activities, channel selection, pricing and builds relationship with channel members.
Marketing and sales activities requires high coordination with other activities like operation,
inbound logistic and outbound logistic.

Services
It includes above activities which supports to keep product or services working
effectively within company so that customers buying behaviour enhances out. Sainsbury
keeps high attention on primary activities so that easy to offer high quality services to the
customer.
Supportive activities
It is also known as secondary activities which helps to perform above activities well-
formed within company. Activities are-
Human resource management
It is another important activity in organization because they perform various
operations such as planning, organizing, implementing, controlling and coordinating. While
HR perform various role in HRM i.e. planning, recruiting, motivating and meets
organization’s vision. Sainsbury has human resource management which supports them to
introduce profitable strategy within organization (Zhang, Leng and Zhou, 2020). The main
goal of the HRM to create sustainability sources for company that generates high profit over
the period. Human resource also helps company to retain best talent within company by
meeting their objectives.
Infrastructure
Organization infrastructure is supportive activity which helps to align overall
departments such as i.e. human resource management, operation management, legal
management, finance management and other management etc. Additionally, effective
infrastructure supports to give power of competitive positioning in business market. By the
infrastructure alignment easy to perform various functions i.e. quality, finance, control and
planning. Sainsbury posse’s hierarchy infrastructure that helps to control overall operation
which is performed by various departments. Organization promotes open communication
channel for influencing interaction to each department that automatically supports company
to meet their objectives.
Technology development
Technology development platys essential role in organization because it helps them to
improve product quality and customers services. Technology involves into various activities

like production, distribution, marketing and human resource management. It gives values to
product and their services within workplace. Sainsbury uses various technologies such as
RFID, online shopping etc for improving customers shopping experience at workplace.
Procurement
Procurement refers as a procedure of selecting vendor’s for selling products, building
payment terms and negotiates buyers and contractor (Eling and Lehmann, 2018). It links
multiple value chain activities such as purchasing input which is converted into final product
through various sources i.e. equipment, machinery, raw material and another important item
that requires for transforming into final product. Sainsbury doesn’t have control on
procurement activities which is specifically involved in inbound, outbound and operation
activities.
Figure 2 porter's value chain analysis
Justification
On the basis of above analysis can be interpreted that organization has good
technology development which helps them to generate high income within company. To
improve customer services organization can offer feedback facilities which supports
customers to share their views about product quality and their services. Additionally, when
customers have complaint about product and they give in grievance, in that state employee
takes grievance seriously and resolve them asap. Such kind service facilities create values for

company among the customer. Thus, technology development is the crucial activity which
can give values Sainsbury’s product and their services in workplace (Nucciarelli and et.al.,
2017). Procurement activity also can influence values of product in business market when
organization uses highly developed technology for transforming input into final output. Thus,
organization can apply both supportive activities that helps to create sustainable competitive
advantage in competitive market.
Reflection
 I analysed on the basis of above two models such as porter five forces and
porters value chain analysis model that organization uses various technology
to create competitive advantage. Porter five forces model helps me to
understand five forces impact on organization performance. I analysed that
supplier’s power, threats of substitutes and threats of new entrants etc.
generates high profitability for company because Sainsbury applies cost
leadership and differentiation strategy. These both strategies assist company to
enhance brand awareness and establish loyalty of customers on their products.
 On the other hand, existing rivalry and bargaining power of buyers gives
negative impact on organization economical structure. I examined that
organization has wide variety product line which is similar to other
supermarket companies. To overcome this issue can use information
technology which assists company to improve product quality that
automatically differential product from other competitive products.
 Porter value chain analysis model is used for understanding values of
operation within organization. Value chain analysis is further divided into two
activities primary and supportive activities. I analysed that HRM,
infrastructure activities are played essential role in Sainsbury because they
implement online shopping services at workplace for influencing buying
behaviour of customers. Procurement activities doesn’t good in company
because it requires high involvement of technology. To take advantage of
procurement activities can involve new technology which handovers overall
activities within company.
 Organization can use information technology to improve online shopping
experience of customers. Information technology supports company to keep
knowledge about stocks at workplace while selling to customers. This

technology saves customers time to wait for payment. Online payment
facilities also promote by Sainsbury for customers where they can easy to buy
product on wide scale.
 ‘Refund and return facilities’ also can provide Sainsbury which builds
customer loyalty on product. Additionally, organization can improve customer
shopping experience by offering grievance facilities where they can complaint
about product quality and employees services. While organization gives early
response on their grievance that builds customer trust on products.
 Race model is another good strategy which helps organization to create digital
marketing strategy. It is not only improving brand awareness but also support
company to take completive advantage from competition market. By the
framework organization can offer touchpoints facilities i.e. Instagram,
Facebook, online networking and own websites to customer. This technology
supports Sainsbury to put pressure on competitors overall leads competitive
advantage.
 Artificial Intelligence is another beneficial strategy which can help
organization to improve online shopping service at workplace. AI enhance
decision management operation by improving employees working efficiency
at workplace. These strategies can help company to overcome their issues
which is identified while analysing models.

REFERENCES
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Online
Sainsbury J Plc Value Chain Analysis. 2018. [Online]. Available Through:-<
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Porter's Five Forces. 2016. [Online]. Available Through:-<
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