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Michael Porter, a Harvard professor, developed an industry review tool commonly referred to as Porter’s Five Forces. This tool allows companies to review the business environment and their operating industry to determine how competition affects business operations.
Porter’s Five Forces include supplier power, barriers to entry, threat of substitutes, buyer power and the rivalry that results from the previous four forces. In the beer industry, the forces dictate how a company can gather the inputs to create beverages, access to distributing products, consumers switching to other products and the ability for consumers to buy product.
While the Five Forces model focuses on market-related issues, nonmarket issues — such as government involvement — can affect beer companies. For example, local municipalities may restrict alcohol sales on Sunday or be a dry city or county, resulting in reduced buyer power.
Using the Five Forces model typically results in an ongoing management process in the business environment. While a company may dominate the market in terms of sales, consumers may become price sensitive if a cheaper competitor becomes available. Companies will need to rethink strategies to account for this shift, such as restructuring operating costs to regain a price advantage.