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High industry fixed costs would NOT be expected to be an issue within which one of Porter’s
five forces?
A Competitive rivalry
B Threat of substitutes
C Barriers to entry
D Power of customersYou need to ask a question and you need to propose a solotion and explain your thought process.
I think high industry fixed costs WILl affect
A Competitors will also face high fixed costs.
C New entrants will have to consider high fixed costs as it will affect their cost structure.
B If a substitute can escape the high costs then those costs are relevant.
So, I think high fixed costs will not affect D, the power of customers. Eg manufacturers have high fixed costs, but the customers could be in retail with a very different set of costs and competetitive environment.
But the answer given in Kaplan is :-
B
High fixed costs often mean that a business needs to ensure it sells a reasonable volume of
its products in order to cover these fixed costs and become profitable. This need to maintain
sales volume is likely to give customers higher power (the company will be keen to retain
customers) and will increase competitive rivalry (the company will want to avoid loss of
customers to rivals/will need to attract customers from rivals to maintain its volume). High
fixed costs may also create a barrier to prevent new businesses from entering the market.please explain why and can you give me any trick to solve similar questions.
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