10. Competitive Forces Flashcards
What are Porter’s five forces and when are the greatest?
- Competitive rivalry
Similar sized rivals, slow market growth, high fixed costs, high exit barriers, lack of differentiation. - Threat of new entrants
Barriers to entry: Economies of scale, capital requirements, patents or govt policy. - Threat of substitutes
- Bargaining power of buyers
Concentration of buyers, threat of backward integration, low switching costs, buyers have low profits and full info. - Bargaining power of suppliers
Few suppliers, few substitutes, high switching costs, possibility of forward integration, supplier producesdifferentiated product
Why may new entrants be a threat to an industry?
- They bring new capacity which may affect pricing structure of industry.
- They threaten market share as they try to achieve critical mass (self sustaining) as quickly as possible to exploit scale economies.
- Firms in industry face increased costs to collectively erect and maintain barriers to entry.
What is a substitute? What are some differences against them?
A substitute is a product or service that satisfies the same set of needs but is borne by another industry or state of technology.
Defences against substitutes:
- produce/control them
- buy them
- differentiate till customers perceive as no substitute available
A market is defined in terms of its customers or prospective buyers. What are 5 classifications of markets? What is the difference between a consumer and industrial good?
- Consumer market
- Industrial market
- Government markets
- Reseller markets
- Export markets
Consumer goods is for family use and doesn’t require further processing. Industrial goods are used to make other goods and services eg raw materials or capital goods.
Market segmentation definition
Dividing market into homogenous groups of potential customers to be treated similarly for marketing purposes.
What are some customer segmentation bases?
Location, lifestyle aspects, purchasing characteristics and demographic (socio-economic or family-life)
After researching and segmenting markets what are some marketing approaches a firm may utilise?
- Undifferentiated (or mass) marketing - company produces a single product and tries to get as many customers as possible without using segmentation. This is cheaper and reaches anyone however it may lead to disappointing sales.
- Differentiated (segmented) marketing - company introduces several product versions each aimed at a different segment. This allows for for separate marketing mix developed for each segment and different markets can be more easily defined. However, marketing costs are higher and message may not reach some customers.
- Concentrated marketing - company tries to produce optimal product for a single market eg Ferrari. This method allows small companies with little resources to achieve strong position in a particular segment. However it requires sophisticated marketing and ignores other area of the market and may cause problems when trying to expand.
Outline Porter’s value chain.
Porter’s value chain describes the activities within and around an organisation that create a product or service. Allows for an organisational analysis by breaking it down into strategically significant activities that add value to the product or service in the eyes of its customer.
As per the value chain, what are primary activities and support activities.
- Primary activities directly create or deliver a product or service.
- inbound logistics (receive, store and distributing inputs to product/service).
- operations transform inputs into final product eg assembly
- outbound logistics - collect, store and distribute product to customers.
- marketing and sales make customers aware of the product and able to sell it eg sales admin
- service (after-sales service) are activities that enhance or maintain the value of a service. - Support activities - help to improve the effectiveness or efficiency of primary activities.
- procurement - acquiring resource inputs for primary activities
- technology development: tech includes know-how eg R&D and product design
- HRM recruit, manage, train, develop and reward people in org
- infrastructure - formal systems of planning, finance, quality control and structures and routine in org culture
The value chain can help a business identify where it can achieve competitive advantage. What is competitive advantage?
How an SBU creates value for its users which is greater than the cost of supplying them and superior to other SBUs
Talk about the value network concept.
The firm nah do all the value activities in house…it has supplier, distributor, customer and even rivals value chains. Understanding the links between value chains allows a firm to steal a value adding activity from another value chain through vertical integration
Talk about vertical integration and its subcategories of backward and forward integration include advantages and disadvantage of vertical integration.
Vertical integration means diversifying into other activities along the value network.
Backward - moving into activities that supply the current business.
Forward - moving into activities customers of existing business are performing.
Advantages:
- profit gains from other parts of value chain.
- may be necessary to ensure stable supply of inputs.
- enables business to adapt more quickly to changing business environment.
Disadvantages
- business may not have the right capabilities to operate in a different part of the network.
- managing more than one type of business may distract senior management and ultimately reduce performance
- the business will need to have the resources to invest in buying suppliers or customers.
