Chapter 6 Flashcards
What is a fragmented industry?
Industry composed of a lot of small and medium sized companies
Why there is a fragmented industry?
Lack of economies of scale, brand loyalty is primarily locals, lack of scale and national brand loyalty
How to consolidate a fragmented industry?
Chaining, franchising, and horizontal merger
What is chaining?
Strategy designed to obtain cost leadership by establishing a network of linked merchandising outlets which functions like a big company
What is franchising?
Strategy which franchisor grants the franchisee the right to use their name, reputation, and business model for a fee
What is a horizontal merger?
Acquiring competitors to make it into larger companies
What is product proliferation and what strategy is that?
Product proliferation is when a segment or niche of a mature industry is poorly served which creates an opportunity for newcomers. The strategy involves “filling the niches” where the current companies try to fill in every possible niches to avoid new competitors.
What is a limit price strategy?
Charging lower prices than the required to maximize profit just to show the newcomers that they cannot compete on the current price
What is technology upgrading?
Incumbent (old) companies invest heavily on the latest and greatest tech (costly too) so that newcomers cannot match
What is strategic commitment?
Investment that incumbent made to show that they are in this for the long term
What is price signaling?
Process by which a company increase or decrease prices to show that they are able to influence industry pricing
What is price leadership?
When they company are able to determine the pricing strategy that maximize industry profit
What is a non-price competition?
Use of product differentiation strategies to defer newcomers
What is product development?
The creation of new or improving existing products to replace current products
What is market development?
When a company searches for a new market segment to sell existing product
