Page 16 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY

Porters Five Forces:

 New entrants – (low threat) it will be made difficult because of barriers to entry. Existing
firms have cost and performance advantage in this industry. This is because existing firms
have already purchased large capital expenditures and have economies of scale. They also
have direct supply and distribution channels setup. There are no significant costs in
switching suppliers. The dental industry is very competitive, so prices only fluctuate
slightly depending on geographical location. A lot of capital is needed to enter this
industry because, there are large capital costs needed for technology and staff during set‐
up. There are licenses, insurances, and other difficult qualifications required in this
industry. The financial cost and experience needed to establish a successful practice is a
highly‐restrictive barrier to entering the industry. The biggest threat to existing practices
comes in the form of practice associates who, disillusioned with their own career and with
the necessary resources at hand, attempt to establish their own practice.

 Rivalry amongst competitors – (high threat) rivalry within dentistry is intense due to the
fragmented nature of the industry. Differentiation exists in the form of VHS and private
practice. Private patients shop for alternative treatments and are receptive to different
levels of customer service. If a practice focuses resources on negotiating with the VHS to
provide income it should adopt a different approach to one focusing on its customers for
income. This makes the rivalry between existing players intense. If a newcomer were to
try and enter the industry, its current players would make it very challenging because of
brand loyalty and recognition amongst customers. There are significant brand identities
associated with CROWNCARE for example, which is why the brand name is an important
competitive edge. Customers would not incur high costs from switching from one practice
to another, therefore making the rivalry between existing practices all the more intense.
Product range prices in the industry are unlikely to fluctuate much between the practices.

The number of recognised and influential brands is therefore low and exit barriers will be
very high with any brand trying to exit having to bear very large losses. It actually would
be difficult to exit this business because of money lost from fixed costs and
advertisements for example. The level of brand loyalty is difficult to measure but is likely
to be high as the industry is large and mature, therefore intensifying the competition for
market share. Different brands tend to target different market segments but this
distinction is less defined in this industry. Brands compete on the basis of price, quality,
and innovation during service delivery so competition in the industry is therefore likely to
be high.
 Substitutes – (low threat) patients would not incur costs in switching to substitute
providers. The threat of substitution to dentistry at macro level is negligible, but the
situation at practice level is clearly different. Dental clinicians offer a range of options for
each treatment and will be free to utilise techniques that they feel offer clinical benefits
to clients and deliver higher profits to the business.

 Power of buyers – (high threat) the most powerful of Porter’s five forces for Crowncare is
undoubtedly the power of the customer. Patients will be in a far stronger position to
influence competition within dentistry. Patients also only tend to be price sensitive when
purchasing products/services that are undifferentiated, expensive relative to their income
and when quality is not important. This is clearly not the case in the dental industry.

66 KAPLAN PUBLISHING