Block 2 Flashcards
Explain the PESTEL analysis:
PESTEL analysis focuses on the six principal
components of strategic significance in the
macro-environment.
* Political
* Economic
* Social
* Technological
* Environmental
* Legal
Which 6 question should be asked when assessing a company’s industry and competitive environment?
- How strong are the industry’s competitive forces?
- What are the driving forces in the industry, and what impact will they have on competitive intensity and industry profitability?
- What market positions do industry rivals occupy— who is strongly positioned and who is not?
- What strategic moves are rivals likely to make next?
- What are the industry’s key success factors?
- Is the industry outlook conductive to good
profitability?
What are the 5 forces used in the five-forces model? (look at graph on slides for the model layout)
- Firms in other industries offering substitute products.
- Buyers
- Suppliers
- Rivalry among competitive sellers
- Potential new entrants
What are the competitive pressures that increase rivalry among competing sellers? (6)
● Buyer demand is growing slowly or declining.
● It is becoming less costly for buyers to switch brands.
● Industry products are becoming less
differentiated.
● There is unused production capacity, or products have high fixed costs or high storage costs.
● The number of competitors is increasing, or they are becoming more equal in size and competitive strength.
● The diversity of competitors is increasing.
● High exit barriers
What are the competitive pressures associated with the threat of new entrants? (10)
Entry threat considerations:
● Expected defensive reactions
of incumbent firms.
● Strength of barriers to entry.
● Attractiveness of a particular
market’s growth in demand and profit potential.
● Capabilities and resources of
potential entrants.
● Entry of existing competitors into market segments in which they have no current presence.
What are four types of barriers to entry?
- Legal
- Strategic
●Predatory Pricing
●Heavy Advertising
●First Mover
●Vertical integration - Technical
●High Start-up Costs
●Sunk Costs
●Economies of Scale
●Monopoly / Oligopoly
●Geographical
●Technological Knowledge - Brand Loyalty
Threat of entry is low and barriers of entry is high when: (5)
● Incumbents (current market position holders) have large cost advantages over potential entrants.
● Customers have high brand loyalty towards incumbents.
● Capital requirements are high.
● Government policies are restrictive.
● Patents and other forms of intellectual property are in place.
When are competitive pressures from substitutes stronger?
● Good substitutes are readily available and attractively priced.
● Substitutes have comparable or better performance features.
● Buyers have low cost in switching to substitutes.
(comp. pressures are weaker for the exact opposite)
When do suppliers have strong bargaining power?
● Suppliers’ products are in short supply.
● Suppliers’ products are differentiated.
● Industry members incur high costs in switching to alternative suppliers.
● There are no good substitutes for what the suppliers provide.
When do buyers have strong bargaining power?
● When buyer demand is weak in relation to market supply.
● The industry’s products are standardized and undifferentiated.
● Buyers cost to switching to competing products are low.
● Buyers have the ability to postpone purchases.
Explain matching company strategy to competitive conditions:
Effectively matching a firm’s business strategy to prevailing competitive
conditions has two aspects:
1. Pursuing avenues that shield the firm from as many competitive pressures as
possible.
2. Initiating actions calculated to shift competitive forces in the firm’s favor by altering underlying factors driving the
five forces.
How does the value net differs from the five forces?
The value net focuses on the interactions of
industry participants with a particular (focal) company.
Defines the category of competitors to include the focal firm’s direct competitors, industry rivals, the sellers of substitute products, and potential entrants.
Introduces a new category of industry
participant (complementors) - producers of products that enhance the value of the focal firm’s products when they are used together.
What are the three steps for Driving forces analysis:
- Identifying what the driving forces are.
- Assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive.
- Determining what strategy changes are needed to prepare for the impact of the
driving forces.
Give a few common drivers of industry change: (10)
- Changes in the long-term industry growth rate
- Increasing globalisation
- Emerging new Internet capabilities and applications
- Shifts in buyer demographics
- Technological change and manufacturing process innovation
- Product and marketing innovation
- Entry or exit of major firms
- Diffusion of technical know-how across
companies and countries - Changes in cost and efficiency
- Reductions in uncertainty and business risk
Define a Strategic group:
Those industry members with similar competitive approaches and positions in the market.
They must:
- Have comparable product line breadth.
- Emphasizing the same distribution channels.
- Depend on identical technological approaches.
- Offer the same product attributes to buyers.
- Offer similar services and technical assistance.
