5 - Industry evolution & strategic change

Question 1

One of the best‐known and most enduring marketing concepts is the product lifecycle. Products are born, their sales grow, they reach maturity, they go into decline and they ultimately die. If products have lifecycles,

Answer 1

so too do the industries that produce them. The industry lifecycle is the supply‐side equivalent of the product lifecycle.

Question 2

The lifecycle comprises four phases:

Answer 2

introduction (or emergence), growth, maturity and decline

Question 3

In the introduction stage,

Answer 3

sales are small and the rate of market penetration is low because the industry’s products are little known and customers are few. The novelty of the technology, small scale of production and lack of experience means high costs and low quality.

Question 4

The growth stage is characterized by

Answer 4

accelerating market penetration as technical improvements and increased efficiency open up the mass market.

Question 5

maturity stage is characterized by

Answer 5

increasing market saturation;

once saturation is reached, demand is wholly for replacement

Question 6

Finally, the industry enters its decline stage

Answer 6

• industry becomes challenged by new industries

- those produce technologically superior substitute products

Question 7

A dominant design is

Answer 7

a product architecture that defines the look, functionality and production method for the product and becomes accepted by the industry as a whole.

Question 8

Technical standards emerge where there are

Answer 8

network effects – the need for users to connect in some way with one another. Network effects cause each customer to choose the same technology as everyone else to avoid being stranded.

Question 9

To what extent do industries conform to this lifecycle pattern? To begin with, the duration of the lifecycle varies greatly from industry to industry.

Answer 9

Patterns of evolution also differ. Industries supplying basic necessities such as residential construction, food processing and clothing may never enter a decline phase because it is unlikely that they become outdated and other industries may experience a rejuvenation of their lifecycle.

Question 10

It is also important to note that an industry is likely to be

Answer 10

at different stages of its lifecycle in different countries.

Question 11

what does de novo entrants and de alio entrants mean

Answer 11

de novo entrants: start-up companies

de alio entrants: established firms diversifying from related industries

Question 12

born global companies

Answer 12

operate internationally from their inception.
These companies derive significant competitive advantage from the use of resources and the sale of output in multiple countries, for example, reaping the benefits of scale even though markets in individual locations are thin.

Question 13

in the growth phase

Answer 13

the key challenge becomes scaling up

Question 14

With the maturity stage, competitive advantage is increasingly a quest for

Answer 14

efficiency, particularly in industries that tend towards commoditization. Cost efficiency through scale economies, low wages and low overheads become the key success factors.

Question 15

The introduction stage typically features

Answer 15

a wide variety of product types that reflect the diversity of technologies and designs and the lack of consensus over customer requirements.

Question 16

The transition from maturity to decline can be a result of

Answer 16

1. technological substitution (typewriters, photographic film),
2. changes in consumer preferences (canned food, men’s suits),
3. demographic shifts (children’s toys in Europe) or
4. foreign competition (textiles in the advanced industrialized countries).

Question 17

Among the key features of declining industries are:

Answer 17

1. excess capacity
2. lack of technical change
3. declining number of competitors but some entry as new firms acquire assets of existing firms cheaply
4. high average age of both physical and human resources
5. aggressive price competition

Question 18

During the introductory stage, product innovation is the basis for initial entry and for subsequent success. Soon, however,

Answer 18

other requirements for success emerge. In moving from the first generation of products to subsequent generations, investment requirements grow and financial resources become increasingly important.

Question 19

With the maturity stage, competitive advantage is increasingly a quest for

Answer 19

efficiency, particularly in industries that tend towards commoditization.

Question 20

The transition to decline intensifies

Answer 20

pressures for cost cutting

Question 21

sources of organizational inertia

Answer 21

• organizational routines
• social and political structures
• conformity
• limited search
• complementaries between strategy, structure and systems