Page 18 - CIMA MCS Workbook May 2019 - Day 1 Suggested Solutions

CIMA MAY 2019 – MANAGEMENT CASE STUDY

is one of the most significant barriers to entry. New entrants may also have difficulty
establishing a supply chain
 Substitutes – (high threat) there is no threat of the home industry being substituted. The
real threat in this context comes from the selection of design, building material and
framing methods. For Jord, the most common material used for a residential home is
timber and this will not be substituted easily unless the prices were to increase drastically
compared to other materials. This may be influenced by the development of new
manufacturing techniques and materials in the longer term however which may outweigh
the dependence on timber, so the threat of substitutes will be strengthened.
 Power of buyers – (moderately high) overall the power of the buyer is low when they are
purchasing a single home and they will have little influence when dealing with a
fragmented builder network. However when buying a differentiated product or custom
made home (as is the case with Jord) their negotiation (and therefore buyer power)
increases. The home builders such as Jord will realise that they will have to be more
flexible when negotiating if they want to make a sale to the category of buyer that has
C$1.5m to spend on a home. Such buyers are in a position to bargain for lower prices,
greater quality etc. 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 form of design. Given the recent financial crisis, the buyers are generally price
sensitive and would switch to another brand that offers lower prices and the same
quality. Based on the overall picture for this sort of product, their bargaining power is
strong. Brands such as JORD have generated customer loyalty through design, quality,
offering competitive prices, good project management and client involvement throughout
to combat this.
 Power of suppliers – (low) the bargaining power of suppliers in this industry is likely to be
weak as there are probably many of them and of course cheaper imports will affect their
overall power. These suppliers have to play per the rules set by the brands e.g. JORD
insisting that any new suppliers adhere to their strict policies on environmental impact
and the additional controls that all materials are tested to comply with the highest quality
standards, to ensure both durability and sustainability.

These frameworks can be used is 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. JORD will need to maintain its current profitability to maintain its position
as one of the key players in the industry.

68 KAPLAN PUBLISHING