3.7.7 analysing the strategic position of a business

Question 1

Porter’s 5 forces model

Answer 1

Question 2

Reasons why competitive rivarly (and profits) vary between industries

(S,S, cn&w)

Answer 2

-size (revenues, quantity)
-structure
-distribution channels
-customer needs and wants
-profitability
-growth
-product life cycle
-alternatives for the consumer

Question 3

Examples of high profit and low profit industries

Answer 3

Airlines- low profits
soft drinks- high profits
cafes- low profits
pharmaceuticals- high profits

Question 4

Threat of new entrants

(Rwi, b?, low b =….)

Answer 4

-if new entrants move into an industry they will gain market share & rivarly will intensify

-The position of existing firms is stronger if there are barriers to entering the market

• if barriers to entry are low then the threat of new entrants will be high, and vice versa

Question 5

Examples of barriers to entry

(Eos, bl, VI)

Answer 5

Economies of scale
Vertical integration
Brand loyalty
Access to the best technologies
Expertise & reputation

Question 6

Bargaining power of suppliers

(EP, hp, sip)

Answer 6

If a firms suppliers have bargaining power they will:

-exercise that power
-sell their products at a higher price
-squeeze industry profits

Question 7

Suppliers are powerful when

(Ns, sr, hc)

Answer 7

-only a few large suppliers
-resource is scarce
-cost of switching supplier is high
-no or few subsitute resoruces

Question 8

Bargaining power of customers

(Pc-ddp,

Answer 8

powerful customers are able to exert pressure to drive down prices

eg- supermarket business is increasingly dominated by a small number of large retail chains able exert great power over suppliers

Question 9

Threat of substitute products

(Docl, tc, s- lp)

Answer 9

-A substitute product- something that meets the same customer need

-if there are substitues to a firms product, they will limit the price that can be charged and will recuce profits

-will depend on customer loyalty and availability

-note the role of technological change in rapidly creating new subsitiues

Question 10

Determinants of intenisty of rivalry

(Noc, cu, bl)

Answer 10

-number of competitors
-size and growth prospects
-product differentiation and brand loyalty
-the power of buyers/availability
-capacity utilisation
-cost structure of the industry
-exit barriers