Analysis of Five Porter on ETSY

By Anaise Aubrey Khan & Riyanto Jayadi

Threats of new entrants

New entrants in Specialty Retail, Other brings innovation, new ways of doing things and put pressure on Etsy, Inc. through lower pricing strategy, reducing  costs, and providing new value propositions to the customers. Etsy, Inc. has to manage all these challenges and build effective barriers to safeguard its competitive edge.

How Etsy can tackle Threats of new entrants :

• Etsy Inc can take advantage of the economies of scale it has within the industry, fighting off new entrants through its cost advantage.
• Etsy Inc can focus on innovation to differentiate its products from that of new entrants. It can spend on marketing to build strong brand identification. This will help it retain its customers rather than losing them to new entrants

Bargaining power of suppliers

All most all the companies in the Specialty Retail, Other industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins Etsy, Inc. can earn in the market. Powerful suppliers in Services sector use their negotiating power to extract higher prices from the firms in Specialty Retail, Other field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Specialty Retail, Other

How Etsy can tackle Bargaining power of suppliers :

• Etsy Inc can purchase raw materials from its suppliers at a low cost. If the costs or products are not suitable for Etsy Inc, it can then switch its suppliers because switching costs are low.
• It can have multiple suppliers within its supply chain. For example, Etsy Inc can have different suppliers for its different geographic locations. This way it can ensure efficiency within its supply chain.
• As the industry is an important customer for its suppliers, Etsy Inc can benefit from developing close relationships with its suppliers where both of them benefit.

Bargaining power of buyers

Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on Etsy, Inc. profitability in the long run. The smaller and more powerful the customer base is of Etsy, Inc. the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.

How Etsy can tackle Bargaining power of buyers :

• Etsy Inc can focus on innovation and differentiation to attract more buyers. Product differentiation and quality of products are important to buyers within the industry, and Etsy Inc can attract a large number of customers by focusing on these.
• Etsy Inc needs to build a large customer base, as the bargaining power of buyers is weak. It can do this through marketing efforts aimed at building brand loyalty.
• Etsy Inc can take advantage of its economies of scale to develop a cost advantage and sell at low prices to the low-income buyers of the industry. This way it will be able to attract a large number of buyers.

Threats of substitutes products or services

When a new product or service meets a similar customer needs in different ways, industry profitability suffers. For example services like Dropbox and Google Drive are substitute to storage hardware drives. The threat of a substitute product or service is high if it offers a value proposition that is uniquely different from present offerings of the industry.

How Etsy can tackle Threats of substitutes products or services :

• Etsy Inc can focus on providing greater quality in its products. As a result, buyers would choose its products, which provide greater quality at a lower price as compared to substitute products that provide greater quality but at a higher price.
• Etsy Inc can focus on differentiating its products. This will ensure that buyers see its products as unique and do not shift easily to substitute products that do not provide these unique benefits. It can provide such unique benefits to its customers by better understanding their needs through market research, and providing what the customer wants.

Rivalry among the existing competitors

If the rivalry among the existing players in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. Etsy, Inc. operates in a very competitive Specialty Retail, Other industry. This competition does take toll on the overall long term profitability of the organization.

How Etsy can tackle Rivalry among the existing competitors :

• Etsy Inc needs to focus on differentiating its products so that the actions of competitors will have less effect on its customers that seek its unique products.
• As the industry is growing, Etsy Inc can focus on new customers rather than winning the ones from existing companies.
• Etsy Inc can conduct market research to understand the supply-demand situation within the industry and prevent overproduction.