Page 18 - CIMA May 18 - MCS Day 1 Suggested Solution

CIMA MAY 2018 – MANAGEMENT CASE STUDY

UK that a commuter sued a transport company successfully for consistent delays.
However, with the alternative modes you do not need to worry about reliability and
maintenance so there are pluses and minuses on both sides. Owning a car is both a
matter of convenience prestige and finance for many. So as a result, the threat of
substitutes is slightly weakened in that context

 Power of buyers – (moderately high) a large number of small individual buyers that buy
single/return journeys. However, there are government agencies, school boards etc. that
pay for concessions or operate under tender etc. with some 55% of revenue for MENTA
coming from these sources. Such buyers are in a position to bargain for lower prices but
having said that, whether small or large buyers, they can easily switch to a new brand.
There are no major costs involved in switching to another brand or to an alternative mode
of transportation. The buyers are generally price sensitive and would switch to another
brand that offers lower prices. Based on the overall picture their bargaining power is
moderately strong. Brands such as MENTA have generated customer loyalty by customer
service, quality, safety etc. and by offering competitive prices and value for money to
combat the threat.

 Power of suppliers – (relatively weak) the bargaining power of suppliers in the public
transportation industry is relatively weak as the bus companies rely on a range of suppliers
to provide goods and services linked to bus operations. These include vehicle
manufacturers, fuel suppliers, IT companies, uniform manufacturers etc. Many of them will
be small players with only a few of them significant in size. These suppliers have to play per
the rules set by the major players, regulation and governments (e.g. stringent controls over
safety) which will hold immense influence and switching from one supplier to another will
not be difficult.

These frameworks can be used in several ways:

 To help management decide whether to enter a particular industry segment or market.
 To influence whether to invest more in an industry e.g. it is important to know whether the
investment costs will be recouped.
 To identify what competitive strategy is needed, establishing the factors driving profitability
in the industry. MENTA will need to maintain its current profitability to maintain investor
confidence.

62 KAPLAN PUBLISHING