Pfizer’s business environment is examined in this Five Forces analysis (Porter’s model) in terms of the influence or power of competitors, buyers, suppliers, substitutes, and new entrants in the industry. This business environment sets the external factors that determine the company’s growth opportunities, as well as threats that hinder the biopharmaceutical business. Pfizer’s competitive advantages are developed to address these external factors. Through this Five Forces analysis of Pfizer, the industry environment is presented according to external factors that shape the company’s strategies for competing in domestic, regional, and global markets for pharmaceuticals and biotechnology.
This Five Forces analysis of Pfizer considers external factors that align with industry trends. For example, industry trends and macro-environmental factors in Pfizer’s business influence the external factors included in this Five Forces analysis. Thus, further examination of Pfizer’s business environment through analytical models other than Porter’s Five Forces Analysis can yield additional valuable information for strategic management.
Threat of New Entrants (Weak)
New entrants establish their operations as new competitors that can reduce Pfizer’s market share and profits. In this Five Forces analysis, external factors that influence the threat of new entry against Pfizer include:
- Strong regulatory barriers to entry
- High cost of entry into the pharmaceutical industry
- Buyers’ low to moderate switching costs
The strict regulation of biopharmaceuticals is an external factor that limits the rate of new entry and its corresponding threat to Pfizer’s business. Considering Porter’s Five Forces analysis model, this external factor adds business complexity that reduces or limits the threat of new entry in the biopharmaceutical industry.
Also, this Five Forces analysis indicates the high cost of entry that limits the corresponding threat that Pfizer needs to deal with. For example, to effectively establish their operations, new entrants face high capital costs and operating expenses in research and development for their own medicines, vaccines, and related products.
Buyers or customers, including healthcare organizations and patients, experience low to moderate switching costs. For example, when switching from Pfizer products to competing products with the same active ingredients, there are low switching costs. However, the costs may be higher for medicines and vaccines that have fewer competitors.
With these barriers to entry, the threat of new entrants is weak in this Five Forces analysis of Pfizer. Although large companies with sufficient resources can diversify to enter the biopharmaceutical industry, the corresponding threat remains limited and weak.
Threat of Substitutes (Weak)
Substitutes can shift demand and reduce business profitability in the biopharmaceutical industry. External factors that define the threat of substitution against Pfizer are:
- Regulatory requirements and limitations
- Limited availability of substitutes for biopharmaceuticals
- Low variety of substitutes
- Buyers’ low to moderate tendency to use substitutes
Pfizer’s pharmaceutical business is subject to strict regulation. In Porter’s Five Forces analysis model, this external factor also limits the use of substitutes for biopharmaceutical products. For example, governments regulate healthcare organizations to ensure that only approved products, such as Pfizer medicines, are used to treat patients.
Substitutes, such as alternative medicines, are popularly used in some regions or countries. However, in the global market, substitutes usually have limited availability and low variety. In this Five Forces analysis of Pfizer, such factors limit or weaken the threat of substitution.
Even in markets where substitutes are available, many customers (healthcare organizations and patients) have a low to moderate tendency to use substitutes. Instead, customers commonly use biopharmaceuticals, like Pfizer medicines. This external factor further limits the threat of substitution in the biopharmaceutical industry.
Considering Porter’s Five Forces analysis model, these external factors limit the threat of substitution against Pfizer. Substitutes are present, but they exert a weak force against the company and its biopharmaceutical products.
Bargaining Power of Buyers/Customers (Weak to Moderate)
Buyers or customers include healthcare organizations and patients, whose purchase decisions affect the competitive performance of Pfizer’s products, such as medicines and vaccines. In this Five Forces analysis, external factors that influence the bargaining power of buyers over Pfizer include:
- Buyers’ low to moderate switching costs
- Buyers’ limited information and knowledge about biopharmaceuticals
- Moderate to high price sensitivity of buyers
- Limited availability of substitutes for pharmaceuticals
Based on the low to moderate switching costs, buyers experience low to moderate consequences when they switch from Pfizer to competing products. These costs include financial expenses, delays in treatment, and other factors. In this Five Forces analysis, such switching costs equate to the considerable tendency of buyers to switch to Pfizer competitors.
Buyers’ limited information and knowledge about biopharmaceuticals relate to information asymmetry. With this asymmetry, patients are highly likely to follow prescriptions and their doctors’ recommendations instead of switching from Pfizer to competing products.
Because the price sensitivity of buyers is moderate to high, these buyers’ bargaining power relates to the prices of available products from Pfizer and its competitors. Considering the cost of healthcare, many buyers, especially individual patients, are likely to consider looking for more affordable options. In this Five Forces analysis of Pfizer, such an external factor strengthens the bargaining power of buyers in terms of lowering the prices of pharmaceutical products that have significant competition in the market.
The limited availability of substitutes in many pharmaceutical markets limits the potential of buyers to shift to these substitutes. This factor has a limiting effect on the bargaining power of customers in this Five Forces analysis of Pfizer.
Overall, customers have weak to moderate bargaining power over Pfizer. Also, new patented breakthrough biopharmaceuticals from Pfizer create competitive advantages that can reduce the bargaining power of customers, while competitors catch up with their own biosimilars or wait for patent protections to expire. It is worth noting that Pfizer’s mission, vision, and business purpose call for such breakthroughs as long-term strategic goals that can mitigate buyer power in this Five Forces analysis case.
Bargaining Power of Suppliers (Moderate)
Supplier power can influence Pfizer’s operating costs and productivity, such as in product development and production. External factors that affect the bargaining power of suppliers over Pfizer are:
- Moderate to high number of suppliers
- Suppliers’ moderate forward integration in the biopharmaceutical industry
- Pfizer’s moderate costs of switching between suppliers
There are many suppliers of materials used in Pfizer’s operations. In this Five Forces analysis, the large population of suppliers weakens their bargaining power, as Pfizer can switch from one supplier to another. Changes in a supplier’s strategies also has a limited or low impact on the company’s biopharmaceutical business.
Through their moderate forward integration, some suppliers have control of the distribution and sale of their products to Pfizer. However, this forward integration is limited and offers only a moderate contribution to the bargaining power of suppliers in this Five Forces analysis case.
Pfizer faces moderate costs when switching between suppliers. For example, these costs may include logistical changes and higher spending on new supplies. This external factor relates to the moderate bargaining power of suppliers over Pfizer.
This Five Forces analysis of Pfizer determines that the bargaining power of suppliers is a moderate force. This force comes with strategic issues in maintaining adequate supply to support the company’s operations. Pfizer’s operations management for supply chain reliability mitigates some of the effects of the bargaining power of suppliers.
Competitive Rivalry (Moderate to Strong)
Competition pushes against Pfizer’s business growth. Competitors implement their respective competitive strategies to ensure their long-term business growth in pharmaceutical and biotechnology markets. In this Five Forces analysis, external factors that define the force of competitive rivalry with Pfizer include:
- Limited number of large multinational pharmaceutical firms
- Large number of small local and regional pharmaceutical firms
- Buyers’ low to moderate switching costs
- Low differentiation of biopharmaceuticals vs. generics and biosimilars
Pfizer competes with large multinational firms and smaller firms. Major competitors, such as Johnson & Johnson and Eli Lilly, as well as smaller regional and domestic players, create a competitive market that requires an effective combination of innovation, pricing, and branding. Such market conditions add to the intensity of competitive rivalry in this Five Forces analysis of Pfizer.
Even with strong competitors, low to moderate switching costs can discourage buyers’ switching from Pfizer to competitors. This external factor limits the impact of competition on the company’s performance in biopharmaceuticals markets.
Competitive rivalry at the level of individual products is moderate to strong because of the low differentiation between Pfizer’s products compared to biosimilars (different active ingredients but same treatment outcomes), as well as generics. Such low differentiation makes it easier for buyers to switch from Pfizer to generics or biosimilars, and strengthens the degree of competitive rivalry in this Five Forces analysis case.
These external factors present the moderate to strong force of competitive rivalry in pharmaceutical business. Pfizer’s competitive strategies and growth strategies aim at supporting business success despite the force of competition. Also, the SWOT analysis of Pfizer shows business strengths that, when applied prudently, can grow the company through opportunities in the industry, and can mitigate the effects of the competitive rivalry determined in this Five Forces analysis.
Summary: Five Forces Analysis of Pfizer
This Five Forces analysis of Pfizer and its competitive environment indicates the following intensities of the Five Forces:
- Threat of new entrants: Weak
- Threat of substitutes: Weak
- Bargaining power of customers: Weak to Moderate
- Bargaining power of suppliers: Moderate
- Competitive rivalry: Moderate to Strong
Recommendations for Pfizer
Based on the force intensities in this Five Forces analysis, and considering biopharmaceutical industry and market conditions, the following are recommended actions for Pfizer:
1. Enhance Pfizer’s marketing mix (4Ps) to improve the performance of products that directly compete with generics or biosimilars. This recommendation focuses on managing competitive rivalry and the bargaining power of customers in the pharmaceutical market.
2. Pfizer’s programs for sustainability and other CSR and ESG goals affect how buyers perceive the business. It is recommended that the company capitalize on these programs to influence its brands and improve customers’ perception and likelihood of favoring Pfizer products. This recommendation focuses on improving the company’s brands and competitiveness to manage the impact of competition and the bargaining power of buyers/customers determined in this Five Forces analysis. Through sustainability strategies, this recommendation also deals with the bargaining power of suppliers by strengthening Pfizer’s supply chain.
References
- Bade, C., Olsacher, A., Boehme, P., Truebel, H., Bürger, L., & Fehring, L. (2024). Sustainability in the pharmaceutical industry – An assessment of sustainability maturity and effects of sustainability measure implementation on supply chain security. Corporate Social Responsibility and Environmental Management, 31(1), 224-242.
- Pfizer Inc. – Why Invest.
- Pfizer Inc. Form 10-K.
- Rathore, A. S., & Sarin, D. (2024). What should next-generation analytical platforms for biopharmaceutical production look like? Trends in Biotechnology, 42(3), 282-292.
- U.S. Department of Commerce – International Trade Administration – Biopharmaceuticals Industry.
- Ullagaddi, P. (2024). Digital transformation in the pharmaceutical industry: Enhancing quality management systems and regulatory compliance. International Journal of Health Sciences, 12(1), 31-43.