Attractiveness of Mineral Water Industry in Bangladesh

Attractiveness of Mineral Water Industry in Bangladesh

Mineral Water Industry in Bangladesh is the most attractive beverage categories. Mineral water’s convenience, purity, and profitability are important for this concern. About industry and competitive environment and to find out the industry attractiveness Porter’s 5 forces is most likely guess.

Porter'sFive Forces is a simple but powerful tool for understanding the attractiveness of the business environment, and for identifying the strategy's potential profitability. This is useful, because, when one understands the forces in the environment or industry that can affect the profitability; one will be able to adjust the strategy accordingly.

 

Porter's Five Forces helps us to find out the analysis of attractiveness of Mineral Water Industry in Bangladesh. Each force has many indicators which measure the degree of attractiveness by ranking them 1 to 5.

• 1 = very low, 
•  2 = low, 
•  3 = moderate, 
•  4 = high and
• 5 = very high.

Let’s discuss the Attractiveness of Mineral Water Industry in Bangladesh by using Porter's Five Forces:

Bargaining Power of Buyer

Bargaining power of buyer depends on the consumer preferences, municipal water quality, market trends such as health and flavor. Bargaining power of buyer depends on the level of consumer. Mainly 3 types of buyer exist in the mineral water industry which is discussed below: 
Dealer or Agent: Dealer or agent is the first buyer of mineral water industry. They purchase mineral water from the company with commission. Bargaining power of dealer is low. If they buy mineral water of 100000 Taka they get commission of 5000 Taka. 
Retailer: Retailer is the Second buyer of mineral water industry. They purchase mineral water from dealer. Bargaining of buyer is medium. We directly talked with some retailers of departmental stores at Mirpur area to get information. They sell mainly kinley drinking water, Fresh drinking water, and Mum drinking water.

Retailer said that they sell fresh water more because they get more percentage from the company of fresh water. Customers also purchase more fresh water in that area. 
Customer: customer is the end user of mineral water industry. They purchase mineral water from retailer of different shop. Bargaining buyer of customer is low because price of mineral water is fixed in all places.

We collect the price of different sizes of kinley drinking water, Fresh drinking water, and Mum drinking water prices.

Kinley Drinking Water

Size	Retailers purchase price	Selling price to the customer
500 ml	10 Taka	15 Taka
2 Litre	21 Taka	35 Taka

Fresh Drinking Water

Size	Retailers purchase price	Selling price to the customer
500 ml	10 Taka	15 Taka
1 Litre	13 Taka	20 Taka
2 Litre	21 Taka	30 Taka
5 Litre	55 Taka	68 Taka

Mum Drinking Water

Size	Retailers purchase price	Selling price to the customer
500 ml	12 Taka	15 Taka
1.5 Litre	19 Taka	25 Taka
2.5 Litre	28 Taka	35 Taka
5 Litre	60 Taka	70 Taka

Bargaining power of buyer depends on many indicators which are shown below:

·         Switching cost of competing brand: Bargaining power of retailer increase when their cost of switching to competing brands is high because they earn more profit. But bargaining power of consumer increase when cost of switching to competing brand is low. For example, if a retailer is committed to fresh to buy their products for 10 years they can’t switch their brand within 10 years.

How much attractive mineral water industry in Bangladesh faces bargaining power of buyer on the basis of switching cost?

1	2	3	4	5
				ü

·         Standardized and differentiated goods: In mineral water industry all mineral waters are standardized and all products are same so differentiation is weak. Buyer bargaining power increases when mineral water industry goods are standardized and differentiation is weak. Consumer is not concerned about brand in mineral water.

How much attractive mineral water industry in Bangladesh faces bargaining power of buyer on the basis of standardized goods?

1	2	3	4	5
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·         Large number of buyer relative to the number of seller: Buyers are large in number than seller in mineral water industry. Anyone can easily establish mineral water business. Power of mineral industry increases in such cases.

How much attractive mineral water industry in Bangladesh faces bargaining power of buyer on the basis of large number of buyer?

1	2	3	4	5
				ü

·         Well informed about sellers products, prices and costs: The information the buyers have, the better bargaining position they are in. in mineral water industry prices are fixed of all mineral water. Retailers are well informed about prices and costs but consumers are not well informed about real prices and costs like retailer.

How much attractive mineral water industry in Bangladesh faces bargaining power of buyer on the basis of information about products, prices and costs?

1	2	3	4	5
		ü

·         Product represents a large fraction of total purchase: Buyers are more prices sensitive if the product represents a large fraction of their total purchase. Buyers are fewer prices sensitive and bargaining power is low in mineral water industry because the mineral water price is fixed and low. It represents a small fraction of total purchase.

How much attractive mineral water industry in Bangladesh faces bargaining power of buyer on the basis of small fraction of total purchase?

1	2	3	4	5
			ü

The average degree of attractiveness of the industry on the basis of Bargaining Power of Buyers is 3.60.

That means this industry is moderate/High attractive.

Bargaining Power of Suppliers

Bargaining power of suppliers is very important factor to be considered in any industry as they are the main strength of the company. In Mineral Water Industry, the suppliers are Municipal water systems; spring operators; bottling equipment manufacturers; deionization; reverse osmosis and filtration equipment manufacturers; manufacturers of PET and HDPE bottles and plastic caps; label printers and secondary packaging suppliers.

What Bargaining Power Do Suppliers Have?

·         Whether Suppliers' Products are in Short Supply: Suppliers of items in short supply have pricing power and bargaining leverage, whereas a surge in the available supply of particular items shifts the bargaining power to the industry member. The available of suppliers' products, the more the power of industry member and the most attractive the industry is.  In mineral water industry in Bangladesh, water supply and the supplies of others necessary ingredients are available.

How much attractive Mineral Water Industry in Bangladesh on the basis of availability of supplier’s products?

1	2	3	4	5
			ü

·         Whether Suppliers' Products are differentiated: If suppliers provide differentiated products, their bargaining power rises and the vice versa. In case of mineral water industry in Bangladesh, supply of water, supplies of machineries, supplies of bottling equipment manufacturers are different in quality.

How much attractive Mineral Water Industry in Bangladesh on the basis of Suppliers' Products differentiation?

1	2	3	4	5
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  Number of suppliers:  The bargaining power of suppliers is high when they are many in number as they can affect the price, supply of raw materials. In the mineral water industry there are many suppliers available so the industry is the attractive one.

How attractive is the industry on the basis of number of suppliers?

1	2	3	4	5
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·         Availability of good substitute: The ready availability of substitute inputs lessens the bargaining power of suppliers by reducing the dependence on the suppliers in mineral water industry. Buyers can easily switch to another supplier. For example, the supplier of fresh water provide better price and performance to the buyer than MUM water all buyers go to the supplier of fresh and weaker the  bargaining power of MUM suppliers.

How attractive is the industry on the basis of Availability of good substitute?

1	2	3	4	5
		ü

The average degree of attractiveness of the industry on the basis of Bargaining Power of Suppliers is 3.75.

That means this industry is moderate/High attractive.

Competitive Rivalry

Competitive rivalry examines how intense the competition currently is in the marketplace. In the mineral water industry the competition among rivalry is quite high. There are some factors on which the rivalry of competitors of mineral water industry is dependent-

• Number of competitors: .  There are many mineral water brands in Bangladesh such as Kinley Drinking water, Mum Drinking water, Fresh Drinking water, Pran Drinking Water etc. and so the level of competition is high among the companies. When the number of competitor is high the attractiveness of the industry is low.

How attractive is the industry on the basis of number of competitors?

1	2	3	4	5
	ü

• Product Differentiation: The mineral water companies provide same product but in different packaging. For example- the bottle of Mum water is different from that of the Pran drinking water. Attractive bottle will attract new customers. And also the mineral water companies are offering water in different size of bottle. They provide 500ml, 1 liter, 1.5 liter, 2 liter of water for satisfying their customers. The mineral water companies can differentiate their product on the basis of size, color, quality of the bottle and thus they can get competitive advantage. From this point of view the mineral water industry is attractive.

How attractive is the industry on the basis of product differentiation?

1	2	3	4	5
			ü

• Switching cost of buyers:  The switching cost of end consumers of mineral drinking water is low as many mineral water companies are there to offer same product and so they can switch to the brand which offer them lower price. So the industry is less attractive. But the switching cost of industry users such as retailer is relatively high as many of them are in contract with the mineral water companies to provide their products. From this point of view the industry is attractive.

How attractive is the industry on the basis of switching cost of buyers?

1	2	3	4	5
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·         Competitive strategy: The different competitive strategies undertaken by the mineral water company is creating a high level of competition. For example- Mum drinking water is trying to reach as many customers as possible by making contract with various hotels; Pran mineral water is advertising their product by public figure. Different strategies taken by different companies give them competitive advantages which make the industry attractive to them.

How attractive is the industry on the basis of competitive strategy?

1	2	3	4	5
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• Low production cost: Many mineral water companies are moving their production plant form Dhaka to other cities where the production cost is lower. By doing this they can offer product at relatively low costs than others which will increase the competition. As the production cost is low there are many new companies entering in the industry which makes the mineral water industry less attractive.

How attractive is the industry on the basis of low production cost?

1	2	3	4	5
		ü

The average degree of attractiveness of the industry on the basis of Competitive Rivalry is 3.40.

That means this industry is moderately attractive. 

Threats of substitutes

Several factors determine whether or not there is a threat of substitute products in an industry. Here we will find these factors in mineral water industry. Here substitute products are boiled water, jar water etc. Factors are:

·         Consumer switching cost: Here consumer’s switching costs are low, meaning there is little if anything stopping the consumer from purchasing the substitute instead of the industry’s product, then the threat of substitute products is high. But to buy boiled or jar water consumers switching cost is almost same as mineral water.

How attractive is the industry on the basis of Consumer switching cost?

1	2	3	4	5
	ü

·         Substitute product is cheaper than industry product: Substitute products are cheaper than bottled water. If a water supplier meets all the requirements for jar water, each jar will cost taka 60-80 but if they don’t it will cost 3-10 per jar. So here consumer can get water in a low price but it is unhygienic.

How attractive is the industry on the basis of Substitute product is cheaper than industry product?

1	2	3	4	5
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·         Substitute product is of equal or superior quality compared to the industry’s product:  Substitute products are very low quality, for example jar water. In Bangladesh most of the jar water supplier supply water without treating the water as per the standard procedure.

How attractive is the industry on the basis of Substitute product is of equal or superior quality compared to the industry’s product?

1	2	3	4	5
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·         Performances of the substitute product are equal or superior to the industry’s product: If boiled or jar water is purified then the performance of substitute product is equal to bottled water. So this factor is low.

How attractive is the industry on the basis of Performances of the substitute product are equal or superior to the industry’s product?

1	2	3	4	5
		ü

The average degree of attractiveness of the industry on the basis of Threats of substitutes is 3.00.

That means this industry is moderately attractive. 

Threat of New Entrants

If the market is attractive the new entrants would always be a threat for the company but if the market has been restricted to a limited resource and it has very few areas of improvement so it becomes difficult for new entrants to get into the market and hence monopolies exist. Every year number of companies attempt to enter the market and strive for their share of profit and productivity in the market but very few survive.

How Likely Is a New Entrant to the Mineral Water Industry?

New entrant to a market bring new production capacity, the desire to establish a secure place in the market and sometimes substancial resources.Just how serious the competitive threat of entry is in a Mineral Water Industry depends on many indicators. These are:

·         Expected Reaction Of Incumbent Firms to new Entry: Industry incumbent that are willing and able to launch strong defensive maneuvers to maintain their positions can make it hard for a new entrant to gain a sufficient market foothold to survive and eventually become profitable. Entry candidates may have second thoughts if these incumbent offers hard time for them. In mineral water industry in Bangladesh this force is quite low. But in some area it is high. For example in cantonment area it is hard to entry except Sena Drinking Water.

How much attractive Mineral Water Industry in Bangladesh faces new entrant forces on the basis of incumbent?

1	2	3	4	5
	ü

Barriers to Entry: A barrier to entry exists whenever it is hard for a new comer to break into the market and the economies of the business put a potential entrant at a disadvantage the most widely encountered such barriers that entrty candidates must hurdle include the following:

·         Sizable economies of scale in production, distribution or advertising: When the existing firm enjoys the cost advantages, large scale operation and economies of scale, the new one faces hurdles. In Bangladesh, there are many established Mineral Water producers who enjoy this advantages. For example, Mum drinking water owned by PBL serves more than 10 million outlets in rural and urban it enjoys the cost advantages, large scale operation and economies of scale.

How much attractive Mineral Water Industry in Bangladesh faces new entrant forces on the basis of Sizable economies of scale in production, distribution or advertising?

1	2	3	4	5
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·         Cost advantages: Existing company gets fast mover advantage, has proper inventory management, preferential access to raw mateerials, favourable location and low fixed cost. The new one can not get such advantages. If new one wants to compete with existing one, they should enter on a large scale which may be risky for them.

How much attractive Mineral Water Industry in Bangladesh faces new entrant forces on the basis of Cost advantages?

1	2	3	4	5
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·         Brand Preference and Customer Loyalty: The stronger the attachment of buyers to establish brands, the harder it is for new comer to break into the market place. Establishing Brand Preference and Customer Loyalty is very slow and costly process. Though in mineral water industry in Bangladesh, customer switching cost is very low, but customer loyalty for established one is very high. For example, in Bangladesh, Mum drinking water is so popular that people say bottled water as Mum water. So, Mum Drinking Water is found almost everywhere in Bangladesh.

How much attractive Mineral Water Industry in Bangladesh faces new entrant forces on the basis of Brand Preference and Customer Loyalty?

1	2	3	4	5
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·         High Capital Requirement: The larger the capital required, the more attractive the industry is. Mineral Water Industry in Bangladesh requires comparetively less capital than other industry. So, existing company faces the risk of new entry. Many local bottled waters named such as: Muskan, Shanti, Bisleri, Premier, Evian are found in Bangladesh. Because of the availability of resources and and the less capital requirement.

How much attractive Mineral Water Industry in Bangladesh faces new entrant forces on the basis of High Capital Requirement?

1	2	3	4	5
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·         Restricted Government Policy: National Government trade, tariff and trade restriction gives extra advantages to the existing one. The more the restriction, the more the attractive. In Bangladesh ,there has a strong act, “Trademark Act 2009” to protect the existing business trademark. But it is easy to start any business in Bangladesh. So, newcomer in mineral water industry can easily launched, which is a threat for existing one.

How much attractive Mineral Water Industry in Bangladesh faces new entrant forces on the basis of Restricted Government Policy?

1	2	3	4	5
	ü

The average degree of attractiveness of the industry on the basis of Threat of New Entrants is 3.00.

That means this industry is moderately attractive. 

Analysis

From the above information we get a result. The average degree of attractiveness of the industry on the basis of Porter's Five Forces is 3.35.

That means this industry is moderately attractive. Any one has chance to perform business. We use, The Arithmetic Mean, as part of Central Tendency to analyses the result.