3.1.4 Impact of external influences Flashcards
define porters five forces
a framework for analysing the nature of competition within an industry that assesses profitability and attractivness
what does the model consist of?
Bargaining power of suppliers
Bargaining power of customers
Threats of new entrants
Threats of substitutes
Rivalry amongst existing businesses
how can the bargaining power of suppliers change?
lots of suppliers = less power as firms can choose to have multiple suppliers to keep prices low
few suppliers = more power, firms only have few choices, suppliers can charge higher prices due to the high cost of switching
how can we overcome the change in bargaining power of suppliers?
look for new suppliers
choose backward vertical integration and takeover/merge the supplier
explain how the bargaining power of customers can change?
if there is a specialised product -> only few sold -> less power to customer as limited choice
if widely produced -> high amount of power to customer -> lots of choice to shop around for cheaper prices
How can we overcome bargaining power of customers
make it too expensive for customers to switch by keeping prices low
forward vertically integrate
explain the change of threats of new entrants
high barriers due to high set up costs etc -> less threat -> less competition -> high profits
low barriers due to low set up costs etc -> high levels of threat -> more competition-> low profits
how can we overcome the threats of new entrants?
create barriers to entry -> less attractive to customers
heavy advertising
build strong brand presence and loyalty
economies of scale
make customer switching costs high
increase access to tech and R&D
explain the change in threat of substitutes
buyers wiliness to buy a substitute depends on the price and the performance of the substitute
& cost of switching
how can we overcome the threat of substitutes?
continously investing in R&D
develop patents
buy up patents of rivals
explain the change of rivalry amongst businesses
perfect rivalry = monopoly
intensity will impact on the business trying to trade
can mean larger businesses buying up rivals through horizontal integration, introducinh new products to market
heavy advertisment
are the profits of a business determined by the competitive structure of the industry?
yes it is determined by the competitive structure.
define monopoly
a marked dominated by a single business
define oligopoly
a market dominated by a few large businesses
define pestle analysis
analysis of the external political, economic, social, technological, legal and environmental factors affecting a business
what does pestle stand for?
Political
Economic
social
technological
Legal
Environmental
is the competitive environment dynamic or not and why/how?
yes as the environment changes over time and porters forces & pestle analysis must be revisited
-the two analysis methods only provide info for the current period
how can political inf effect a business?
policies on tax which encourage new business’ to encourage lower corporation tax -> offer incentives like subsidy payments to help with start up costs
-gov can introduce high tax on unhealthy products like cigerettes -> improve health of nation
how can economic influences affect a business?
inc changes like consumer spending, interest rates, exchange rates and economic growth
strongy economy -> low levels of unemployment -> steady consumer income -> confident in buying non essential goods
weak economy -> high levels of unemployment -> lower consumer income -> less confident in buying non essentials
how can social influences affect a business?
changes in trends -> change in demand
concern w health -> less demand for sugary drinks and sweets -> need to reconsider their design mix
pop. changes -> impact demand levels e.g. increased demand for residential care homes.
how can techonological inf affect a business?
-change inf decision making
can delay in deciding to invest in new tech as tech is expensive -> disadvantages a business
reconsider changes in design mix as new production processes are now available
how can legal inf affect a business?
impacts business activities
global concern on effects of pollution -> legal deadlines of banning diesel and petrol engines -> fall in demand levels for new petrol and diesel vehicles.
-> result is more focus on hybrid cars -> less polluting
how can environmental inf affect a business?
more concern in protecting environment
-> to retain customers, bus. need to reduce environmental impact e.g. changing to paper bags,
-> if bus dont adaopt will lose customers due to customers strong belief in reducing plastic waste
