Transcript Document 25448

Home Appliances Industry
Study
JOHN RITTER, BHU KUMARESAN, TERESA MAYNARD
Market Definition
 The home appliance industry
includes a laundry list of products,
from washers and dryers,
dishwashers, and ovens to garbage
disposals, air conditioners, and
water heaters
 GE must compete on a global level
Competitors
GE is in over 130 countries!
Internal Rivalry
 High Seller Concentration
 Top 20 firms make 90% of the profit
 Consolidation
 Industry Growth: 3%
Price Competition
 Price information is readily available
 Low switching costs
 Little brand loyalty
 Inelastic demand = .37
Entry
 Large upfront investment
 Land
 Factory equipment
 Insurance
 Licensing
 Market Concentration
- Number of sellers competing
- Stealing profits from top twenty
 Government Regulations
- Specific standards may make it difficult for
them to compete.
- EPA Energy Star program: companies
manufacture appliances according to strict
environmental standards, lowering greenhouse
gas emissions, and in return receive the Energy
Star label.
 Manufacturing Curve
- Takes time to develop the leanest processes
- Low foreign labor cost
Substitutes
 Immediate Rival - Bosch
 Bosch’s 800 Plus dishwasher is “the quietest
dishwasher in North America” at 38 dBA and GE has
developed a substitute that is just as quiet.
Complements
 The housing industry – the two are usually
purchased together
 Demand for home appliances will increase when the
housing market is good and decrease when it falters.
 New housing is more often the reason for purchase
than a customer simply replacing an old appliance.
Supplier Power
Concentration of Suppliers/Substitutes
 Many inputs into appliance manufacturing
 Recent shift to more concentrated industries
 Fewer, larger firms leads to more power for suppliers
 Fewer firms also means fewer substitutes
 Importance of Input Materials
 Appliances made up of 60% steel
Forward Integration and Price Discrimination
 Costly upfront investment makes forward
integration unlikely
 Manufacturers make up a large portion of
suppliers’ business
 Places some power back in hands of the
manufacturers and reduces price discrimination
Buyer Power
Concentration of Buyers Large Volume Purchases
 Overall industry sells to
individuals, these are
“price-takers”
 Discounts are generally
given to large purchases
 Big purchases give
 Large retailers have some
power due to bulk
purchases
 Overall market price stays
intact
suppliers some “wiggle
room” when it comes to
pricing
Substitutes/Elasticity
 No real substitutes
 Demand is inelastic to
both price and household
income

Lawrence Berkeley
National Laboratory
 Gives appliance
manufacturers flexibility
when pricing goods
Backward Integration
 Large upfront costs
 Large economies of scale
and scope
 Wide variety of products
sold by retailers would
make profitability of
vertical integration tough
Conclusion
 Key factors that affect a firm’s profitability:

Volatility of steel prices

Threat of lower-cost manufacturing

Possibility of capturing expanding consumer markets globally
in India and China