Chapter 7 Flashcards
What is the importance of industry analysis in strategic positioning?
Management needs to recognize which industries and segments they will operate in and which markets they are selling to.
What are the five generic types of industry suggested by Porter?
- Fragmented industries
- Emerging industries
- Mature industries
- Declining industries
- Global industries
What characterizes fragmented industries?
Firms are small and each sells to a small portion of the total market.
Provide examples of fragmented industries.
- Dry cleaning services
- Hairdressing services
- Shoe repairs
What are emerging industries?
Industries that have just started to develop and are likely to become much bigger and more significant in the future.
Provide examples of emerging industries.
- Global space travel industry
- Telecommunication industry in Africa
What defines mature industries?
Industries where products have reached the mature phase of their life cycle.
Provide examples of mature industries.
- Automobile manufacture
- Soft drinks manufacture
What are declining industries?
Industries that are going into decline, with total sales and the number of competitors falling.
Provide an example of a declining industry.
Coal mining in Europe
What are global industries?
Industries that operate on a global scale.
Provide examples of global industries.
- Microprocessor industry
- Professional football industry
What is industry convergence?
When two or more industries or industrial segments converge and become part of the same industry with the same customer markets.
What is demand-led convergence?
The pressure for industry convergence comes from customers who view products as interchangeable or complementary.
What is supply-led convergence?
Suppliers see a link between different industries and decide to bridge the gap between them.
Provide an example of supply-led convergence.
Convergence of the entertainment, voice communication, and data communication industries.
Who developed the Five Forces model?
Michael Porter
The model is detailed in ‘The Competitive Environment’.
What does the Five Forces model analyze?
Competitiveness in an industry or market
What is the first force in the Five Forces model?
Threat of new entrants
What does the threat of new entrants refer to?
The threat of new business entities entering the market
How do high barriers to entry affect competitive forces?
Competitive forces are reduced
What happens when prices and profit margins improve in a market?
New firms are tempted to enter for higher profits
What is the second force in the Five Forces model?
Threat of substitute products
What does the threat of substitute products involve?
Customers switching to alternative products
Give an example of substitute products in the market.
Domestic heating systems: gas-fired, oil-fired, electricity-fired
What is the third force in the Five Forces model?
Bargaining power of suppliers
What can happen when major suppliers charge high prices?
Businesses pass on costs to their customers
What factors strengthen the bargaining power of suppliers?
- Small number of suppliers
- No substitutes for products
What is the fourth force in the Five Forces model?
Bargaining power of customers
How can powerful buyers affect pricing?
They can force down prices from suppliers
What is the fifth force in the Five Forces model?
Competitive rivalry
What does competitive rivalry lead firms to do?
Offer products at low prices
List characteristics that indicate strong competitive rivalry.
- Many competitors in the industry
- Rival firms of similar size
- Undifferentiated products
- High withdrawal costs
True or False: Low switching costs can lead to increased competitive rivalry.
True
What happens in markets with slow growth in demand?
Rival firms compete for a fairly fixed total amount of sales
What are barriers/deterrents to entry?
Factors that make it difficult for new entrants to break into the market
What are economies of scale?
Reductions in average costs achieved by producing and selling an item in larger quantities
How do economies of scale create barriers to entry?
New firms have higher average costs than existing large-scale producers, making it difficult to compete on price
What role does government regulation play in market entry?
Regulations or licensing requirements can hinder new entrants from breaking into a market
What is an example of a government regulation barrier?
Obtaining a license to operate in a specific industry
What are switching costs?
Costs incurred by a buyer when switching from one supplier to another
How can high switching costs act as a barrier to entry?
They deter buyers from changing suppliers, making it difficult for new entrants to gain customers
What are capital investment requirements?
Large investments in assets needed for a new entrant to enter the market
Why do capital investment requirements create barriers to entry?
The risk of losing substantial amounts of money if the new business venture fails
What is the significance of access to distribution channels?
Limited number of distribution outlets can create high barriers for new entrants
What does ‘know-how’ refer to in the context of entering a market?
The time-consuming and expensive experience required to be successful in a market
What is a strategic group?
A number of entities that operate in the same industry and have similar strategies or compete in similar ways.
Defined as clusters of firms within an industry that share common specific assets and follow common strategies.
Why is the concept of strategic groups valuable?
It simplifies the analysis of many competitors in an industry by grouping them based on similar resources and strategies.
This allows for collective analysis instead of individual competitor analysis.
When does the concept of strategic groups have no practical value?
When there are only a few competitors in the same industry.
In such cases, each competitor can be analyzed individually.
List three types of strategic groups.
- Companies that seek to maintain their position in the market
- Companies that seek to innovate and develop new products
- Companies that consider marketing to be the key to strategic success
These groups reflect different strategic priorities and approaches.
What is the primary priority for companies seeking to maintain market position?
Cost reduction.
Other priorities include short lead time for delivery and consistent quality.
What are the strategic priorities of innovators?
- Consistent quality
- Rapid product design/change
- Dependable delivery
- Improved product performance
These priorities emphasize innovation and responsiveness to market needs.
Fill in the blank: A lead time is the time between a customer placing an order and _______.
[delivering the product to the customer].
This is critical for companies focusing on short lead times.
What does dependable delivery mean?
Being able to state when and where a product will be delivered to the customer.
This is essential for maintaining customer satisfaction.
True or False: The main concerns of all manufacturing companies are vastly different.
False.
While concerns are broadly similar, their specific priorities differ.
What is a strategic space?
A gap in the market that is not currently filled by any strategic group
The existence of strategic space might provide an opportunity for a company to make a strategic initiative.
How can strategic groups within a market be identified?
By classifying market position in terms of price and quality
Firms may offer lower-priced products with lower quality or higher-priced products with higher quality.
What are the characteristics of Group 1 in the strategic mapping?
Lower-priced products with probably lower quality
Group 1 is one of the strategic groups identified in the market analysis.
What is the largest strategic group based on the provided analysis?
Group 2, which sells products at a middle-range price and middle-range quality
This indicates a common market position among firms.
What might an entity decide to do when it identifies a perceived gap in the market?
Adopt a strategy of filling the empty space by offering a product with needed characteristics
This approach can help the entity capture market share in the identified strategic space.
What strategic position might an entity target if it identifies a gap for high-quality products?
Selling a high-quality product for a low price
This position is viable if there are no firms currently occupying that part of the market.
True or False: Group 3 is positioned in the market with high-quality products at low prices.
False
Group 3’s characteristics are not specified as having high-quality products at low prices.
Fill in the blank: A strategic initiative may be taken to fill the _______ in the market.
strategic space
Filling a strategic space can lead to new opportunities for a business.
What is the purpose of mapping strategic groups according to price and quality?
To identify possible gaps in the market
This helps entities understand their competitive positioning and areas for potential growth.
What might an entity consider if there is a market for higher-quality products at higher prices?
To target that market segment with a new product offering
This could lead to capturing a different consumer base looking for premium products.
What is product differentiation?
The process of making products attractive to customers by highlighting differences in aspects like design, pricing, and branding.
What can a market be identified as?
A group of customers or potential customers for a particular product or range.
What are common ways products are differentiated?
- Product design
- Pricing
- Branding
- Delivery methods
What is market segmentation?
The process of dividing the market into separate segments based on unique and identifiable characteristics and needs.
What is a market segment?
A section of the total market where potential customers have certain unique and identifiable characteristics and needs.
Give an example of how the market for motor cars can be segmented.
- People carriers
- 4x4 vehicles
- Four-door or two-door family saloon cars
- Two-seater sports cars
- Electric-powered cars
What is the importance of market segmentation in strategic management?
- Provides a basis for analyzing competition
- Offers a framework for making strategic choices
What are some methods of segmenting the market?
- Geographical area
- Quality and performance
- Groups of customers
- Function
True or False: Market segmentation only applies to new products.
False
Fill in the blank: Market segmentation is the process of dividing the market into _______.
[separate segments]
What can influence how a business delivers its products?
The chosen delivery method, such as branch network or internet service.
What is an example of product differentiation in service delivery?
Banking services delivered through a branch network or as an internet service.
What is a type of customer segmentation based on social characteristics?
Socio-demographic segmentation
This includes factors like social status, age, and lifestyle.
List some examples of socio-demographic segments.
- Single people under 30 years of age
- Newly-married couples with no children
- Married couples with children
- Retired couples
- Retired single people
These segments help in targeting specific customer groups.
What products and services can benefit from socio-demographic segmentation?
- Holidays
- Motor cars
- Some food and drink products
- Entertainment products
These categories often target specific lifestyle segments.
What is the purpose of analyzing strategic groups in market segmentation?
To identify possible target market segments
This helps in understanding customer lifestyles and preferences.
What does the analysis of strategic spaces suggest?
There may be gaps in the market
This indicates potential opportunities for new products that are not currently available.
What should management assess after identifying gaps in the market?
Whether developing an amended product for these gaps is strategically desirable and financially worthwhile
This involves evaluating market entry strategies.
True or False: Identifying gaps in the market is a method of competition analysis.
True
It helps companies decide on entering a new market.
Fill in the blank: Market segmentation can be based on _______ of customers.
[lifestyle]
Lifestyle factors can significantly influence consumer behavior.
What is a life cycle?
The period from birth or creation of an item to the end of its life.
What are the four classical stages of a product life cycle?
- Introduction
- Growth
- Maturity
- Decline
What occurs during the introduction phase of a product life cycle?
Sales demand is low, and firms incur high investment and running costs.
During which phase do companies start to earn profits?
Growth phase.
What characterizes the maturity phase of a product life cycle?
Total annual sales remain stable, and prices and profits stabilize.
What happens during the decline phase of a product life cycle?
Total annual sales start to fall, leading to reduced profits and companies exiting the market.
True or False: All products have a classical life cycle.
False.
What can businesses do when a product enters the decline phase?
Revitalise and redesign the product to increase sales and enter another growth and maturity period.
What is an example of a product with a long life cycle?
A broad type of product, such as a motor car.
Fill in the blank: The last supplier exits the market when the product lifecycle is ______.
complete.
What is the primary characteristic of the growth phase?
Total sales demand grows at a faster rate.
What might companies do during the maturity phase to improve profits?
Differentiate their products from competitors and target niche market segments.
What happens to profits when total sales begin to fall in the decline phase?
Profits also fall.
What is the relationship between the product life cycle and market entrants?
New entrants are attracted during the growth phase.
What signifies the end of a product’s life cycle?
The product is withdrawn from the market.
How can the life of a product be extended?
Through product updates.
What factors may alter selling prices?
Costs may differ, amount invested may vary, spending on advertising may change
Selling prices can be influenced by various market dynamics and strategic decisions made by companies.
What is the typical lifecycle duration of a smartphone?
Relatively short, sometimes less than a year
This short lifecycle is due to rapid technological advancements.
What strategy do companies use when launching a new smartphone model?
Discount the price of existing models to maximize sales and clear inventory
Companies like Apple, Samsung, and HTC employ this strategy to attract bargain hunters.
What is the purpose of life cycle costing in new product launches?
To ensure the company makes a profit by considering total costs that must be recovered
This technique helps in understanding all costs associated with a product throughout its lifecycle.
List the costs that must be considered in life cycle costing.
- Research and development costs
- Training costs
- Machinery costs
- Production costs
- Distribution and selling costs
- Marketing costs
- Working capital costs
- Retirement and disposal costs
These costs are critical for determining the overall financial viability of a new product.
What costs are associated with the product development stage?
- R&D costs
- Capital expenditure decisions
Decisions made during this phase can significantly impact future costs.
What costs are incurred during the introduction to the market stage?
- Operating costs
- Marketing and advertising to raise product awareness
- Set up and expansion of distribution channels
These costs are essential for successfully launching a product.
What costs are expected during the growth stage of a product’s life cycle?
- Costs of increasing capacity
- Possible learning effect and economies of scale
Companies may invest in scaling up production to meet growing demand.
What type of costs are associated with the maturity stage?
- Incur costs to maintain manufacturing capacity
- Marketing and product enhancement costs to extend maturity
Companies aim to maximize profitability before the decline stage.
What are the cost implications during the decline stage?
- Close attention to costs needed as withdrawal decisions might be expensive
- Asset decommissioning costs
- Possible restructuring costs
- Remaining warranties to be supported
Companies must manage costs carefully to minimize losses during this stage.
What does life cycle costing compare?
Revenues and costs of the product over its entire life
This allows for assessment of potential profitability before major development.
What can be done to non-profit-making products at an early stage?
They can be abandoned before costs are committed
This helps in avoiding unnecessary expenses.
What can techniques used in life cycle costing help to achieve?
Reduce costs over the life of the product
This can improve overall profitability.
What can be determined before a product enters production?
Pricing strategy
This leads to better control of marketing and distribution costs.
Why is it beneficial to reduce the research and development phase?
To get the product to market as quickly as possible
This allows for increased revenue and quicker breakeven.
What can monitoring actual performance against plans provide?
Lessons to improve future product performance
It may also improve estimating techniques.
What is life cycle analysis useful for in a market?
Assessing strategic position and the nature of competition
It helps to understand the number of current and potential future competitors.
What influences the number of competitors in a market?
The phase that the product has reached during its life cycle
Different phases attract varying levels of competition.
What happens when one company achieves success in a market?
Competitors might try to do something even better
This creates a cycle of competition.
What is a typical effect of a cycle of competition on prices and quality?
Prices fall and quality might improve
This is especially true in a growing market.
What challenges arise in the maturity or decline phase of a product’s life cycle?
It becomes more difficult to lower prices without reducing quality
Competitors may resort to price cuts that compromise product quality.
What can happen when companies try to gain market share by lowering prices?
A spiral of falling prices and falling quality
This can make the product less attractive to customers.
What does the concept of the cycle of competition help to explain?
Strategies of companies in a market and future initiatives by competitors
It aids in strategic analysis.
What does the BCG matrix classify?
Businesses, divisions, or products according to present market share and future growth of that market.
What is seen as the best measure of market attractiveness in the BCG matrix?
Growth.
What does a question mark represent in the BCG matrix?
A product with a relatively low market share in a high-growth market.
What is required to increase market share for a question mark?
A substantial investment of cash.
What characterizes a star in the BCG matrix?
High relative market share in a high-growth market.
What is expected of stars over time?
They should gradually become self-financing.
What is a cash cow?
A product in a market with lower or negative growth that has a high relative market share.
What should cash cows provide to the business?
Substantial net cash inflows.
What is the main characteristic of a dog in the BCG matrix?
A product in a low-growth market that is not the market leader.
True or False: A dog may provide positive cash flows.
True.
What might be a strategic decision for a company regarding a dog?
Immediate withdrawal from the market or gradual withdrawal.
Fill in the blank: A star requires a considerable investment of cash to maintain its _______.
Leading position.
What might happen to a dog despite having a relatively small market share?
It may be profitable.
What is the significance of market share in the BCG matrix?
It is a good indicator of competitive strength.
What is the BCG matrix used for?
Analyzing performance of strategic business units (SBUs) and deciding which models of car belong to each category
What is a limitation of market segmentation?
Not useful for analyzing entire markets
What might complicate the definition of a market?
Identifying competing products and defining the geographical area
What are some factors that can provide competitive strength?
- Product quality
- Brand name
- Brand reputation
True or False: A product can have low market share and still maintain a strong competitive position.
True
What is a significant challenge mentioned regarding market share?
Increasing market share and improving cash flows is very difficult to achieve
What is a potential risk of investing in ‘dogs’ according to the BCG model?
It would be unwise to invest more capital in hopes of gaining market share
Fill in the blank: The total market for cars may be divided into different categories of _______.
[types of cars]
What are some criticisms of the BCG model?
There are several criticisms regarding its effectiveness and applicability
