Syndicate
Competitive Power
Lower costs of production and the ability to be able to get new customers due to well recognized trade name are not the only forms that scale can in most cases provide a company with competitive power. By looking into some of the issues behind the investment of a very known of soup company, Campbell Soup Company, is something that can give you a good idea of how this works. To begin with, this is definitely the largest canned soup companies in the entire country and it is able to bring down its total costs through backward integration (which is gaining ownership of one's supply chain, generally in the hope of reducing supplier power and thus reducing input costs) as smaller sized companies are not able to. This company makes their own cans so as to be able to fulfil the needs they have in the company and they are also able to cut down on the costs through backward integration as companies that are smaller are not able to. What is even more essential is that this company has sufficient business so that it is able to spread out canning plants in certain areas inside of the country and this give it more of an advantage since it less of a haul for the farmer that has to take over his produce to the cannery and less of a trip from the cannery to the supermarkets as well. Due to the fact that canned soup is much related to its value, the costs of freight are a considerable amount. These few factors alone places the companies that are smaller and that only have one or two plants in quite a bit of a disadvantage as far as competing in a nation wide market. Another thing is that since this company is a product that is recognized and has customer loyalty when he goes into the supermarket, the retailer always places them in a bigger and good location of the places that people always go to. On the other hand, in cases of companies that are not very well known of, retailers are in most cases a little bit more unenthusiastic about placing these products in very noticeable areas. The shelves that more customers go by are good because they help to promote and sell the product and this is obviously another reason why these types of companies usually stay on the top and is obviously not very encouraging for the potential competitors. Something else that is very discouraging for the less known of potential competitors is the advertising budget that this company has as it adds a lot less to the cost per can that is sold than this kind of budget would for a competitor that has a much smaller production. Due to these types of reasons, this specific company has very sturdy intrinsic forces that protects their profit margins. Nonetheless in order to bring out the whole view, it is also important to point out some of the factors that are working in exactly the opposite way. When the company’s own cost went up, such as what happens in an inflationary period, the prices to the consumer cannot be increased over the average of other foods because otherwise there would be a change in demand and would turn away form their product to other products. What is even more important, this company has a big time competitor that most of the smaller competitors do not have to deal with and that as the increasing costs of production continue bringing about higher prices to their consumers, can draw considerably into the market of this company. This has to do with housewives that that make their own food in their own kitchens due to the budget they have. The reason this one factor is brought up is to show that even when scale can afford you big competitive advantages and a company that is run in the right way, these features, although they are very essential, are not any guarantee of extreme profitability.