Study Porter five forces for markets in the Pearson Edexcel A Level Business specification, with the knowledge and exam application needed for accurate mark-scheme responses.
Source for use with Extract E Vietnam’s emerging cosmetics industry Growing disposable income, changing beauty standards and the spread of social media have all contributed to the increasing demand in Vietnam for beauty products. Vietnam’s skin care product market was valued at $850m in 2019 and is expected to reach $1.9bn by 2027. Vietnam has an increasing middle-income class who are allocating more of their income to cosmetics products. A middle-class female in Vietnam spends an average of VND* 450 000 – VND 500 000 (US$19 – US$21) monthly on makeup and skincare. Since 2018, the percentage of women in Vietnam using cosmetics has increased from 76% to 86%. In the next decade, Vietnam’s cosmetics market is projected to grow by 15–20% annually. Vietnamese people are becoming more health-conscious, and are paying closer attention to the ingredients of beauty products in the market. The natural cosmetics sector holds immense growth potential in the medium term. Many Vietnamese consumers see foreign brands of cosmetics as having higher quality. Major foreign cosmetics companies such as Unilever, L’Oréal and Beiersdorf have all recently entered the market there. The market is highly price sensitive. Since a large proportion of consumers are young people with a low income, they tend to buy products from the low-end rather than the high-end of the market. * VND = Vietnamese Dong
Evaluate the usefulness of Porter’s matrix to a business considering entry into the Vietnamese cosmetics market.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis, Evaluation - indicative content
- Porter's matrix is used to identify the sources of competitive advantage
that a business might achieve in a market
- Porter identified three generic strategies that could be followed and said that without one of these a business would lose direction and be unlikely to succeed
- These are Cost leadership, Differentiation and Focus (cost focus and
differentiation focus)
- The Vietnamese cosmetics market is changing and growing rapidly by
an expected 15% to 20% annually
- The market is 'highly price sensitive' at the moment, therefore a cost
leadership approach may be a good strategy to follow
- By concentrating on reducing costs, becoming as efficient as possible,
looking for economies of scale and sourcing the cheapest inputs, it may be possible to reduce prices and gain a competitive advantage
- This would help to gain entry into the market and may suit an already established global cosmetics company
- A differentiation strategy means adding value in a way that will make it stand out from the competition
- By doing so a premium price can be charged and lead to greater profitability
- A foreign brand is perceived to be of higher quality by many
Vietnamese consumers already, so this could be a source of
differentiation for a global business
- A focus strategy targets a narrow part of the market either by focusing on cost for a limited range of cosmetics or by differentiating in some
way
- There is said to be 'immense growth potential' for natural cosmetics
and this may be a good area to focus strategy on
- The Vietnamese cosmetics market is changing rapidly and a strategy that works now may not be the best in the near future
- It does not take into account the state of the market in terms of
competition now or in the future, Porter's five forces may be better at
analysing that
- It does not take into account external factors, SWOT or PESTLE analysis may be more helpful here
- In short, Porter's matrix will be of limited usefulness but may be a good
starting point as long as it is backed up with other analytical tools and some accurate market research
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-4
Isolated elements of knowledge and understanding.
Weak or no relevant application of business examples.
An argument may be attempted, but will be generic and fail to connect causes and/or consequences.
Level 2
5-8
Elements of knowledge and understanding, which are applied to the business example.
Arguments and chains of reasoning are presented but connections between causes and/or consequences are incomplete. Attempts to address the question.
A comparison or judgement may be attempted but it will not successfully show an awareness of the key features of business behaviour or business situation.
Level 3
9-14
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
Uses developed chains of reasoning, so that causes and/or consequences are complete, showing an understanding of the question.
Arguments are well developed.
Quantitative and/or qualitative information is introduced in an attempt to support judgements, a partial awareness of the validity and/or significance of competing arguments and may lead to a conclusion.
Level 4
15-20
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
Uses well-developed and logical, coherent chains of reasoning, showing a range of causes and/or effect(s).
Arguments are fully developed.
Quantitative and/or qualitative information is/are used well to support judgements. A full awareness of the validity and significance of competing arguments/factors, leading to balanced comparisons, judgements and an effective conclusion that proposes a solution and/or recommendations.