Intensity of Competition in the Casino Industry

Rivalry among existing firms:

Define the casino gambling industry.

There are 150 casino facilities in this high interest industry that made 26 billion of profit in 2002 and growth was expected to be 5% in 2003. Globally, the online gambling market experienced strong growth in 2011 with wins of $33.6 billion.

What is level of concentration?

The number of casinos is high, so the rivalry amongst the existing casinos is quite high. The concentration of casinos in Nevada is high with around 240 casinos earning $9 billion revenue. However Mississippi, Indiana, Louisiana, Illinois and Iowa have revenue of $10 billion in casino industry. The U.S. casino gambling industry has become more consolidated over time due to acquisitions and internal growth

Threat of New Entrants:

What are the barriers to entry into this industry?

The barriers to entry is very high in this industry because of the high risk associated with it as the new casino will have to face several hurdles like high taxes and internet gambling. Due to the decrease in gambling market and US economy, the government considered the high taxes and applied the higher taxes in gambling industry in 2002. It posed the barrier to entry for the potential entrants into the industry. The casino gambling industry is highly regulated and is one of the most taxed industries in the United States. State governments are the primary regulators, and taxes vary by state

Bargaining Power of Suppliers:

Who are the suppliers?

In casino industry, the suppliers are the ones who provide inputs such as gambling machines and tourism agencies. Gaming equipment manufacturers supply electronic gaming devices, systems, table games, key components, and support products and services to the casino gaming industry. The supplier power is the ability of the input providers to determine and negotiate prices and terms of quantity supplied. Suppliers with high power can exert force and power over the firms in the industry through raising the prices and/or reducing the quality of goods supplied.

Discuss suppliers bargaining power.

The supplier’s power is an important economic factor in the market place because they can have impact on the profitability of gambling industry. International Game Technology (IGT) is the nation’s largest slot machine maker and is one of the leading suppliers of gaming products to the world. So it has high bargaining power because of being the leading supplier of gaming products.

Bargaining Power of Buyers:

Who are the buyers?

Buyers are the consumers of the product but they can also be the wholesalers and retailers who buy the product from manufacturer and bring it to the final consumers. In the gambling industry, buyers are visitors, players and traveler. In the gambling industry, the buyers will have many kinds of games

Discuss whether the buyers have bargaining power?

The buyers have less bargaining power as the concentration of casinos is really high in this industry. Buyers have low switching cost as they can switch to other casinos without any fees associated.

Threat of substitutes:

What other substitutes limit the sales and profits for firms in the industry?

The betting from horse and dog has been increasing since the slot machines are introduced. Therefore, the increase in this industry will limit the sales and profits of the gambling industry. The threat of substitutes is quite low because the number of horse and dog race is not high in comparison with casino concentration.

Relative power of other stakeholders:

Who are the major stakeholders?

The major stakeholders are suppliers, buyers, creditors, government and activists. The government can have the power on the gambling industry by the policies such the tax increase in 2002. The residents of communities are in support of the casinos but the some parts of community does not support the casino such as churches, ad hoc citizen’s groups, and national organization (e.g. the national coalition against legalized gambling). The reason for this argument is from the negative affects that the gambling industry brings to the society like bankruptcies and gambling habits. The relative power of other stakeholders is quite high because we can see that the influences of the communities and government are very important to the existence of any organization

Relative power of complementors:

Who are the complementors?

Airlines, automobiles and gasoline prices are complementors. For many of the larger gambling properties, customers arrive by airline, especially business and vacation travelers. The business travelers and vocational visitors benefit the casino industry because they travel from other countries to casinos. The travelers always need the tourism organizations to guide them to the casino. Furthermore, the aviation also has important affects on gambling industry. Airlines offered fare sales through which people travel to casinos. Automobiles are the primary means by which customers travel to casinos. The smaller, regional, and Native American gambling markets are negatively affected by the gasoline prices. The power of complementors is really high as any change or negative impact on the aviation, airline, automobile or gas charges will hit the casino business as well.

Now that you’ve analyzed each of the forces of competition, discuss the implications of the above mentioned levels of intensity.

Which forces of competition are most threatning now? Which do you expect will change over the next, say, five years?

Out of all of the forces, rivalry among existing competitors is threatening because the smaller casinos are merging to form big casinos due to which the gambling industry will become more interesting and rigourous with strong competitors fighting with each other. Over the next five years the number of casinos will decrease but there will be increase in strong big casinos.

What are the implications in terms of profit margins in the industry today? Over the next five years?

Competitor, substitutes, economy growth and legislation.

As the CEO of a firm in the industry, what actions does this analysis suggest you implement in order to strengthen your competitive strategy?

As a CEO I would suggest to increase the investment, focus on product development and try to diversify location.

As an advisor to the potential entrant, would you recommend entry? What steps would you advise new entrants to take?

I will recommend the potential entrant to enter into the market. I will advise them to invest in:

Research (before entering) about the existing services and products at the existing casinos.
Research about the expectation of the consumers
Research and predict the trend of economy growth
Learn from failure of the existing casinos’ services and products
Look for the location with good hotel system
And of course, the preparation for human resources and facilities are important and compulsory.

NEW ZEALAND BUILDING SUPPLIES INDUSTRY CASE

Question 1

What are the key success factors for competing in building supplies retailing in New Zealand?

The key success factors for competing in building supplies retailing in New Zealand are:

The ability to expand and curtail operations rapidly:

The ability to move inline with the market demand is essential for the operators to maintain profit margins and compete against other operators in the market.

Ability to negotiate with the regulators:

The contractors should be able to understand the local regulations and make sure that all the development and retailing projects are built inline with the local regulations and code.

Access to high quality inputs:

A successful company will be based on strong relationships with the suppliers of high quality construction materials and fixtures.

Compliance with government regulations:

Internal Code Council’s building codes and government regulations must be kept in focus by the building suppliers and contractors in order to be successful in their business operations.

The ability to alter goods and services produced in the favor of market conditions:

The capacity of the contractors to generate contracts in a variety of building markets can successfully assist the firms in stabilizing cashflows during the economic downturn.

Ability to recollect the feedback from customers:

A customer feedback management system can be embedded in the operations to build more profitable relationships with the customers. The companies can focus on boosting shares, reducing costs, better retention and encourage positive word of mouth.

Development of new technologies:

In order to improve business processes for trade customers, new technology development should be a priority, along with electronic trading with suppliers.

Provision of largest range of products and services to consumers:

A key success factor would be to provide customers with the largest range of products for home improvement at the lowest prices.

Corporate Social Responsibility:

It is important to emphasis sustainability issues within the operations, along with placing value on social responsibility and environmental awareness while maintaining economic viability.

Question 2:

How much competitive rivalry was there in the industry prior to 2002?

Prior to Bunnings Warehouse entry in 2002, the building supplies industry in New Zealand was dominated by Mitre 10 Mega (in home improvement segment) and Place Makers (in trade markets). Prior to 2003, Mitre 10 had dominated the home improvement segment, whereas PlaceMakers and Carters held the first and second positions respectively in the trade market. ‘Mitre 10 has been a household name in New Zealand since 1974 when it was introduced by 15 hardware retailers who had noted the success of Mitre 10 in Australia.’12 Originally trading as Fletcher Merchants, Placemakers can trace its roots to 1910. The brand name of PlaceMakers was adopted in 1981. Carters’ is the retail operation of Carter Holt Harvey (CHH), a company whose activities in related businesses can be traced back to 1859. Other competitive forces operating before 2002 were ITM building Centres, Hammer Hardware and other smaller firms operating independently from these chains that focus on niche market like Paints, Decoration and Gardening equipments.

Which competitive forces have the greatest influence on company performance today?

Today the major competitive force that has greatest influence on company performance is bargaining power of suppliers. When a group of suppliers is powerful, it would imply that its product is unique or differential and, because of that, it is generally dominated by few companies in the industry to which it sells its products. For example In Australia, Bunnings has partnerships with more than 1000 Australian and international suppliers. Given the breadth of its product line, supply chain management is a key component of its profit and success.

Do the forces differ across the home improvement and trade market segments?

Yes, the competitive forces differ across the home improvement and trade market segments. Home improvement market has been driven by several competitors both on smaller scale and larger scale. Home improvement and hardware retailing consist of a wide variety of products and services related to the needs of the ‘do-it-yourself’ (DIY) customer. Many smaller warehouses have been offering the similar services and products to the similar customers as the big chain of retailers had been providing. So the numbers of competitors in home improvement market are numerous while in the trade market segment the competitors are few. The bargaining power of buyers in the home improvement industry is less than in the trade market segment. The trade segment of the building supplies industry includes a range of companies and individuals providing building and construction services to residential and non-residential customers. These companies/individuals are significantly larger users of building supplies in contrast to the home repairer. As the volume and value of these building contracts increases, trade customers are often able to negotiate more favorable terms from retailers. The bargaining power of customers in home improvement segment is higher as if the consumer is price sensitive and well-educated regarding the product, buyer power is high (Porter, 2004). Hence do it yourself customers of home improvement are more price sensitive as compared to trade market segment.

Question 3

Which strategies are most successful in addressing the competitive forces?

Standardization of specification in order to neutralize supplier’s bargaining power can be an effective measure. It will make it easier to easily switch between the vendors. In order to counter customer power, the companies should expand services like Bunnings initiated DIY workshops, kids play area and cafes for the New Zealand customers. Other customer driven strategies like providing trailer hire, tool renters, key cutting and color matching are good services to get benefit from. In order to capture market share, pricing strategies can be a good strategy. Offering penetration pricing or price skimming can attract potential and new customers. The companies should invest more in products that differ significantly from the rivals in order to temper price wars initiated by the competitors. In order to scare off the new entrants, elevate the fixed costs of competing with each other. In order to limit the threats of the substitutes, offer better value through wider products accessibility.

Question 4

Contrast Mitre 10 and Bunnings in New Zealand. Does either have any competitive disadvantages or advantages? Detail which advantages are sustainable?

Mitre 10 have expanded supplier network in overseas and local market. Mitre 10 is steadily building upon the competitive advantage by providing great pricing and increased range for the customers. Customer service area and staff training is another competitive advantage enjoyed by Mitre 10. Economies of scale through bulk purchasing and cost reduction through synergies are achieved by Mitre 10 in New Zealand. The Mitre 10 MEGA format provides an increased product range and extra services that make the store more of a destination, such as a café, a play area for children and/or a garden centre. The addition of drive-through lanes and availability of trailers make it easier to pick up supplies. The Mitre 10 MEGA stores were designed to service the expanding demand from customers for convenience through a one-stop-shop for all their home improvement shopping needs, with the associated slogan emphasizing the greatest range of products at the lowest prices, along with advice from experts and great personal service.

To service larger home builders, Bunnings have operated a number of specialized distribution centers and frame and truss operations. In Australia, Bunnings has partnerships with more than 1000 Australian and international suppliers. Given the breadth of its product line, supply chain management is a key component of its profit and success. The Bunnings Warehouses specifically aim to achieve economies of scope by combining building supplies, gardening and home wares at a single location and economies of scale by stocking over 45 000 products. Discounted prices are used to stimulate demand and visits to the warehouse stores. Bunnings initiated DIY workshops; kids play area and cafés in its Australian stores and have rolled out the same format in New Zealand. Bunnings’ slogan and advertisements feature its price guarantee — to beat competitors’ prices, initially by 10 per cent, but this was increased to 15 per cent when Mitre 10 matched the 10 per cent discount.

Question 5

Which companies are likely to be most affected by the continuing rivalry in the home improvement segment? Why? Will the trade segment be affected?

The most affected companies due to increased rivalry are the small retailers that offer lower priced paints and painting products, car care products, plastic storage boxes, gardening supplies and equipment, barbecues and patio furniture. There are also specialist plumbing, electrical and lighting suppliers who offer an extensive breadth of a particular type of product with margins depending on the quality and type.

References

Porter, M. (2004). Porter Five Forces.