Chapter 6 - Business-level strategy and the industry environment Flashcards
Define Fragmented industry
Industry composed of a large number of small and medium-sized companies
What are the three reasons for fragmentation?
i) lack of economies of scale
ii) local brand loyalty
iii) low entry barriers due to lack of economies of scale and national brand loyalty
What strategy works best in a fragmented industry?
Focus strategy
How can you consolidate a fragmented industry?
i) Value innovator
ii) Chaining
iii) Franchising
iv) Horizontal mergers
Define Value innovator
Defines value differently than established companies
Define Chaining
Obtaning the advantages of cost leadership by establishing a network of linked merchandising outlets
Define franchising
Strategy in which franchisor grants the franchisee the right to use the franchisor’s name, reputation, and business model in return for a fee and a percentage of the profits
Define Horizontal mergers
Merging with or acquiring competitors and combining them into a single large enterprise
Define Mass market
One in which large numbers of customers enter the market
When does a mass market occurs?
i) product value increases
ii) complementary products are developed
iii) production cost decreases
What are the five customers groups?
i) innovators
ii) early adopters
iii) early majority
iv) late majority
v) laggards
Define Competitive chasm
Transition between the embryonic market and mass market
What are the six factors that accelerate customer demand?
i) relative advantage
ii) complexity
iii) compatibility
iv) trialability
v) observability
vi) viral diffusion
Define Relative advantage
Degree to which a new product is perceived as better at satisfying customer needs than the product it supersedes
Defines Complexitiy
Products perceived as complex and difficult to use will diffuse more slowly than those that are easy to use
Define Compatibility
Deegree to which a new product is perceived a being consistent with the current needs and existing values of potential adopters
Define Trialability
Degree to which potential customers can experiment with a new product during a hands-on trial basis
Define Observability
Degree to which the results of using and enjoying a new product can be seen and appreciated by other people
What are the four strategies to deter entry in a mature industry?
i) product proliferation
ii) limit price
iii) technology upgrading
iv) strategic commitments
What are the two price startegies to manage rivalry?
i) price signaling
ii) price leadership
Define Price signaling
Companies increase or decrease product price to:
- convey their intentions to other companies
- influence the price of an industry’s products
What are the four non-price competition strategies?
i) market penetration
ii) product development
iii) market development
iv) product proliferation
Define Non-price competition
Use of product differentiation startegies to deter potential entrants and manage rivalry within an industry
Define Price leadership
When one company assumes the responsability for determining the pricing startegy that maximizes industry profitability
Define Market penetration
Occurs when a company concentrates on expanding market share in its existing product markets
Define Product development
Creation of new or improved products to replace existing products
Define Market development
When a company searches for new market segments for its existing products to increase the sales
Define Product proliferation
Large companies in an industry have a product in each market segments
What are the four startegies in a declining industry?
i) leadership
ii) niche
iii) harvest
iv) divestment
Define Leadership startegy
When a company develops strategies to become the dominant player in a declining industry
Define Niche strategy
When a company focuses on pockets of demand that are declining more slowly than the industry as a whole to maintain profitability
Define Harvest strategy
When a company reduces to a minimum the assets it employs in a business to reduce its cost structure and extract maximum profits from its investment
Define Divestment startegy
When a company exits an industry by selling off its business assets to another company
