Chapter 6 Flashcards
What is fragmented industry
Small and medium sized companies where no company is big enough to influence the direction or growth of the industry
What are the reasons for fragmentation
- Lack of scale economies, customer needs are so specialized that only a small amount of product is required
- Brand loyalty is local and its hard to go beyond a particular region
- Lack of scale economies and brand loyalty which implies a low entry barriers resulting in a steady stream of new companies
What strategies work best in the fragmented industries
Focus strategies
What are fragmented industries wait for
Value innovation
What are the lessons behind fragmented industries
Wide open markets that wait for entrepreneurs to transform them to pursue value innovation
What is chaining
Involves opening additional stores that adhere to the same basic formula and this way a company can quickly build a national brand
What is franchising
Strategy that franchisor grants to its franchisees the right to used the franchisor name, reputation and business model for a franchisee free
What is a franchisor
Right to open and operate a new location to a franchisee in return for a fee
How does franchising work
Franchisee puts up some capital to establish operations which helps finance the growth of the system and can expand
What are the advantages of using the franchising strategy
- Finance growth and rapid expansion
- Operations are run efficiently
- Franchisees have a deep knowledge on the local markets which enable new offerings or processes
What are the disadvantages of franchising
- Less control
- Franchisee only captures a portion of economic profits
- High cost of capital resulting to high cost and lower profits
What are horizontal mergers
Companies merger or acquire with their competitors in a fragmented industry, resulting to realize scale economies and build a more compelling national brand
What are the draw backs of horizontal mergers
Companies pay too much for the business
Why is customer demand for products in an embryonic industry limited
- Limited performance and poor quality for first products
- Customer unfamiliarity with what the new product can do for them
- Poorly developed distribution channels to get the product to them
- Lack of complements
- High costs of production
When does mass market start to develop
In growth stage
What happens when mass market start to emerge
- On going technological progress makes the products easier to use and increase its value for the average customer
- Complementary products are developed to increase its value
- Companies work to find ways to reduce the costs of produce the new product in order to lower its price and stimulate high demand
What is a mass market
Large numbers of customers enter market
What happens when mass markets emerge
- Ongoing technological progress makes a product easier to use and increase value
- Complementary products are developed that it increases its value
- Companies in the industry work to find ways to reduce the costs of producing the new products so that they can lower their prices and stimulate demand
What are the different groups of customers
- Innovators -have technical talents and interests which drive them to own new technology
- Early adopters - willing to experiment with it to see if they can pioneer new uses for the technology
- Early majority - the leading wave of the mass market
- Late majority - purchase the new technology when many peers already have done so
- Laggards - Conservatives and unappreciative of uses of new technology
What are new strategies that often require strengthening a company’s business model as market develops over time
- Managers should identify the needs of early majority users which are the leading edge of the mass markets
- Adjust business models by developing new strategies to redesign products and create channels to satisfy the early majority
- Price should be reasonable as they enter the market
- Focus on business models that satisfy the need of early majority
What is s-shaped growth curve
Illustrates how different groups of customers with different needs enter the market overtime
How do innovators and early adopters customer needs differ from early majority
- More technologically sophisticated customers that tolerate limitations of the product
- Reached through specialized distribution channels and product is sold by WOM
- Few in number and not as price sensitive
What are strategic implications
The speed where a market develops can be measured by its growth rate
What is growth rate
Rate where customers in that market purchase the industry’s product