Chapter 6 - Business-level strategy and the industry environment

Question 1

Define Fragmented industry

Answer 1

Industry composed of a large number of small and medium-sized companies

Question 2

What are the three reasons for fragmentation?

Answer 2

i) lack of economies of scale
ii) local brand royalty
iii) low entry barriers due to lack of economies of scale and national brand loyalty

Question 3

What strategy works best in a fragmented industry?

Answer 3

Focus strategy

Question 4

How can you consolidate a fragmented industry?

Answer 4

i) Value innovator
ii) Chaining
iii) Franchising
iv) Horizontal mergers

Question 5

Define Value innovator

Answer 5

Defines value differently than established companies

Question 6

Define Chaining

Answer 6

Obtaning the advantages of cost leadership by establishing a network of linked merchandising outlets

Question 7

Define franchising

Answer 7

Strategy in which franchisor grants the franchisee the right to use the franchisor’s name, reputation, and business model is return for a fee and a percentage of the profits

Question 8

Define Horizontal mergers

Answer 8

Merging with or acquiring competitors and combining them into a single large enterprise

Question 9

Define Mass market

Answer 9

One in which large numbers of customers enter the market

Question 10

When does a mass market occurs?

Answer 10

i) product value increases
ii) complementary products are developed
iii) production cost decreases

Question 11

What are the five customers groups?

Answer 11

i) innovators
ii) early adopters
iii) early majority
iv) late majority
v) laggards

Question 12

Define Competitive chasm

Answer 12

Transition between the embryonic market and mass market

Question 13

What are the six factors that accelerate customer demand?

Answer 13

i) relative advantage
ii) complexity
iii) compatibility
iv) trialability
v) observability
vi) viral diffusion

Question 14

Define Relative advantage

Answer 14

Degree to which a new product is perceived as better at satisfying customer needs than the product it supersedes

Question 15

Defines Complexitiy

Answer 15

Products perceived as complex and difficult to use will diffuse more slowly than those that are easy to use

Question 16

Define Compatibility

Answer 16

Deegree to which a new product is perceived a being consistent with the current needs and existing values of potential adopters

Question 17

Define Trialability

Answer 17

Degree to which potential customers can experiment with a new product during a hands-on trial basis

Question 18

Define Observability

Answer 18

Degree to which the results of using and enjoying a new product can be seen and appreciated by other people

Question 19

What are the four strategies to deter entry in a mature industry?

Answer 19

i) product proliferation
ii) limit price
iii) technology upgrading
iv) strategic commitments

Question 20

What are the two price startegies to manager rivalry?

Answer 20

i) price signaling
ii) price leadership

Question 21

Define Price signaling

Answer 21

Companies increase or decrease product price to:
- convey their intentions to other companies
- influence the price of an industry’s products

Question 22

What are the four non-price competition strategies?

Answer 22

i) market penetration
ii) product development
iii) market development
iv) product proliferation

Question 23

Define Non-price competition

Answer 23

Use of product differentiation startegies to deter potential entrants and manage rivalry within an industry

Question 24

Define Price leadership

Answer 24

When one company assumes the responsability for determining the pricing startegy that maximizes industry profitability

Question 25

Define Market penetration

Answer 25

Occurs when a company concentrates on expanding market share in its existing product markets

Question 26

Define Product development

Answer 26

Creation of new or improved products to replace existing products

Question 27

Define Market development

Answer 27

When a company searches for new market segments for its existing products to increase the sales

Question 28

Define Product proliferation

Answer 28

Large companies in an industry have a product in each market segments

Question 29

What are the four startegies in a declining industry?

Answer 29

i) leadership
ii) niche
iii) harvest
iv) divestment

Question 30

Define Leadership startegy

Answer 30

When a company develops strategies to become the dominant player in a declining industry

Question 31

Define Niche strategy

Answer 31

When a company focuses on pockets of demand that are declining more slowly than the industry as a whole to maintain profitability

Question 32

Define Harvest strategy

Answer 32

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

Question 33

Define Divestment startegy

Answer 33

When a company exits an industry by selling off its business assets to another company