Chapter 2 Flashcards
What are the 7 general environment segments?
Demographic
Economic
Political/Legal
Sociocultural
Technological
Global
Sustainable Physical
What is the general environment and its characteristic?
Dimensions in broader society influencing industries & firms.
Not directly controlled by firms
What is the industry environment and its 5 factors?
The set of factors influencing a firm & its competitive actions
Threat of New Entrants
Power of Suppliers
Power of Buyers
Threat of product substitutes
Intensity of rivalry
What are the 4 parts of external environment analysis?
Scanning
Monitoring
Forecasting
Assessing
What factors influence a firms ability of entering an industry?
Barriers to entry
Retaliation from current participants
What are examples of barriers to entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
When are Suppliers Powerful?
- A few large companies dominate the supply market.
- There are no good substitute products.
- Industry firms are not key customers.
- Their products are essential for buyers’ success.
- Switching suppliers is costly.
- They can threaten to enter the buyers’ industry.
When are Buyers Powerful?
- They buy a large share of the industry’s output.
- Their purchases make up a big part of the seller’s revenue.
- They can easily switch to another supplier at little or no cost.
- The products are similar, and buyers could start making them themselves.
When is the threat of substitute products highest?
When switching costs are low
When the substitute product has a lower price or higher quality & performance
Why does slow industry growth intensify competition?
Firms must attract customers from competitors instead of relying on market expansion.
How do high fixed or storage costs impact competition?
Companies lower prices to reduce inventory, which intensifies price-based competition.
What happens when products are undifferentiated or have low switching costs?
Competition increases as buyers base decisions mainly on price rather than brand loyalty.
What are high strategic stakes, and how do they affect rivalry?
When success in a market is crucial for multiple competitors, rivalry becomes more intense.
What are common types of exit barriers?
Specialized assets
High fixed exit costs
Strategic interdependencies
Emotional barriers
Government restrictions.
What are exit barriers, and how do they affect competition?
High exit barriers keep firms in the industry even when profitability is low, leading to sustained competition.
