Block 2 Flashcards
Define External Environment?
Is composed of all the outside factors or influences that impact the operation of business. The business must act or react to these factors in order to survive and succeed.
Define Internal Environment?
refers to the culture, members events, and factors within an organisation that has the ability to influence the decisions of the organisation. These factors are under the control of the company.
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/Regularoty
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 conducive 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.
- Rivalry among competitive sellers
- Potential new entrants
- Buyers
- Suppliers
What are the factors that increase rivalry and the strength of rivalry among competing sellers? (8)
- Buyer demand is growing slowly or declining.
- Buyer costs to switch brands are low
- Industry products are identical or weakly differentiated.
- The firms in the industry have to much production capacity and/or inventory.
- The firms in the industry have high fixed costs or high storage costs.
- The number of competitors is increasing and they are becoming more equal in size and capability.
- Rivals have diverse objectives, strategies, and/or countries of origin.
- Rivals have emotional stakes in the business or face high exit barriers.
What are some common weapons for competing with rivals? (5)
- Discounting prices, holding clearance sales.
- Offering coupons, advertising items on sale.
- Advertising product or service characteristics, using ads to enhance a company’s image.
- Innovation to improve product performance and equality.
- Introducing new or improved features, increasing the number of styles to provide greater product selection.
- Increasing customisation of product or service
- Building a bigger, better dealer network.
- Improving warranties, offering low-interest financing.
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)
- there are sizable economies of scale in production, distribution, advertising, or other activities
- current/ established firms have other hard to replicate cost advantages over new entrants
- customers have strong brand preferences and high degrees of loyalty to current/ established firms in the industry
- patents and other forms of intellectual property protection are in place
- there are strong network effects (when buyers are more attracted to a product when there are many other users of the product) in customer demand
- capital requirements are high
- there are difficulties in building a network of distribution/dealers or in securing adequate space on retailers’ shelves
- there are restrictive regulatory policies
- there are restrictive trade policies (tariffs and trade restrictions)
Which factors determine if competitive pressures from substitutes are stronger or weaker?
- Good substitutes are readily available and attractively priced.
- Substitutes have comparable or better performance features.
- Buyers have low cost in switching to substitutes.
(competitive pressures are weaker for the exact opposite)
How company managers identify substitutes?
- Determining where the industry boundries lie/
- Figuring out which other products or services can address the same basic customer needs as those produced by industry members.
What are signs that competition from substitutes are strong? (3)
- sales of substitutes are growing faster than sales of the industry being analysed
- producers of substitutes are moving to add new capacity
- profits of the producers of substitutes are on the rise
When do suppliers have strong bargaining power? (4)
- 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.
- Industry members are incapable of integrating backwards to self-manufacture items.
- Industry members do not account for a big fraction of suppliers’ sales
When do buyers have strong bargaining power? (4)
- When buyer demand is weak in relation to market supply.
- The industry’s products are standardized and differentiation is weak.
- Buyers cost to switching to competing products are low.
- Buyers have the ability to postpone purchases.
- Customers are well informed about the product offering of sellers and cost of production
