Exam code: 7132
Both supplier power and competitive rivalry have increased in recent years in a particular market. To what extent is it inevitable that this will lead to a decrease in the profits of all businesses in this market?
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Banking on change
The UK banking industry is dominated by the ‘Big 5’ banks. These banks have had costly networks of physical branches. Recently they have closed many branches, particularly in rural areas.
New technology and changes to government rules have opened the market to competition from relatively new entrants called ‘challengers’. Challenger banks target a niche and aim to provide better customer service.
Metro Bank, like other challengers, has grown fast, but unfortunately it had to declare losses after a major accounting error in early 2019.
Appendix A Examples of types of challenger bank
Bank(s) | Type of service |
Monzo, Starling | Fully online bank (this type includes 90% of challengers) |
Tesco, M&S | Bank linked to retailer brand |
Metro Bank | City branches open 12 hours a day |
Appendix B Market share of banks in UK, 2019 (%)
Appendix C Selected share price and market capitalisation box information
22 February 2019 | 6 March 2020 | |
Metro Bank share price (pence) | 1430.0 | 128.0 |
Metro Bank market capitalisation (£) | N/A | 218.8m |
Barclays Bank market capitalisation (£) | N/A | 16 850m |
Appendix D People using online banking (2009–2019)
(Index: base year 2013)
Appendix E Analysis of UK banking industry (2019)
To what extent does the data show that new entrants are a significant threat to the ‘Big 5’ banks?
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A to D (below) apply to the market leader of a particular industry. Which one of these is not a barrier to entry for a business seeking to enter this industry?
The market leader
is vertically integrated with its suppliers.
experiences diseconomies of scale.
has high brand loyalty.
owns a patent.
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According to Porter’s five forces, which one of these events is most likely to help a business’s profitability?
A decrease in supplier power.
A new entrant into the market.
An increase in buyer power.
New product development by a competitor.
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Read the case study in the Insert.
To analyse its competitive environment in the cruise ship engine market segment, KMH plc uses Porter’s five forces model. Use the information provided to decide whether the power of buyers or the likelihood of new entrants is the bigger threat to KMH plc.
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