Chapter 8 Flashcards
The Industry Lifecycle Model
- Introduction
- Growth
- Maturity
- Decline
Introduction phase
The introduction phase is characterized by:
-high fragmentation
-entrepreneurial
-high degree of -innovation
-many small –competitors
-lots of R&D
-customers willing to pay a premium
-uncertainty about the market
lack of legitimacy
Introduction Phase Examples
Examples:
A new technology - that may change the current industry
A new invention - creates a new industry or changes the old one
A new drug - creates a new industry or changes the old one
A change in a government regulation - that affects a new industry being created
Growth phase
The growth phase is characterized by:
a dominant design (i.e. standard)
shakeout (firms exiting)
products appeal to wider market
economies of scale
lower prices
growing sales
new entrants
de facto standard (GROWTH)
on the other hand, arises by virtue of common usage and is not officially sanctioned by any authority. It is a standard “in fact” or “in practice,” rather than in law. Microsoft Windows is the de facto standard for personal computer operating systems because over 90% of the market uses Windows.
de jure standard (GROWTH)
When a standard is legally mandated and enforced by a government or standards organization
shakeout
often occurs as a standard has been achieved. It is a natural process for an industry as it simply purges and weeds out the weaker competitors. The firms remaining after the shakeout emerge as strong competitors able to scale up production and serve the needs of a growing market.
Growth Stage Examples
Cannabis Industry in Canada
Cannabis companies race to clinch an edge in pot industry’s next phase of growth: (With the global cannabis business expected to be worth $194 billion in seven years)
Maturity phase
The maturity phase is characterized by:
Slow growth
Markets saturated
Competition
intensifies
Profitability
Price-conscious
consumers
Incremental
improvements (“new and improved”)
Lots of advertising
Price wars
Mature
Examples:
Furniture
Clothing and shoes
Electronics
Hardware
Groceries
Sports
Burger restaurants
Cell phone
how do you enter and compete in a mature industry that is already saturated and succeed?
Offer the customer something truly: different, something unexpected and something to take notice.
Differentiation strategy
Decline phase
The decline phase is characterized by:
Declining “industry sales” due to one or more of the following:
Changes in demographics
Shifting consumer tastes
Technological substitution
(Remember: A decline in a “company” sales does not mean the entire industry is declining)
Decline phase
Examples:
Tobacco industry
Cola (sugary pop) industry
Retail malls
Characteristics of the Industry Life Cycle Model Stages
Alternatives to manage the decline phase
Maintain a leadership stance
Pursue a niche strategy
Harvest profits
Exit early
Consolidate
leadership strategy
requires a firm to continue investing in marketing, support, and product development, hoping that competitors will eventually exit the market. Despite declining sales and profit margins, there may still be opportunities to generate above-average returns for firms that remain the industry leaders during this phase.
niche strategy
is to find a specific segment of the industry that may not decline as rapidly as the rest and where the firm can expect to possess some form of competitive advantage to discourage direct competition in the niche. For example, a tobacco firm facing declining cigarette sales may decide to focus exclusively on the more robust cigar market and defend that niche heavily against competitors by investing in marketing and sales support
harvesting profits strategy
strategy requires squeezing as much remaining profit as possible from the industry by drastically reducing costs. The firm must eliminate or severely restrict investments in the industry and take advantage of existing strengths to generate incremental sales. This strategy is ultimately followed by the firm’s exit from the industry.
exit early strategy
allows firms to recover some of their prior investments in the industry by exiting the market early in the decline phase, when assets may still be valuable to others and there is greater uncertainty concerning the speed of the decline. Some firms also choose to exit the industry during the mature phase to truly maximize the value from the sale of its assets. Once decline becomes evident, assets are worth much less to potential buyers, who are in a stronger bargaining position.
consolidation strategy
involves acquiring at a reasonable price the best of the remaining firms in the industry. This allows the acquirer to enhance its market power and generate economies of scale and synergies to further reduce costs and make up for declining demand.
Innovation and Technology: The evolution of technology
Radial innovations
Incremental innovations
Radical innovations
are when new technical processes or advancements mark a significant departure from existing practices
they often create a whole new industry (such as automobiles or wireless phones have done).
These innovations are often referred to as discontinuous because they do not continue to build on the previous technological regime, but instead mark a shift to a completely new technology.
An example would be the shift to jet engines in aircrafts, which did not build on the previous propeller-based technology.
Incremental innovations
occur when a company makes relatively minor improvements or modifications to an existing product or practice in the hopes of differentiating it from the competition. It is also a way to extend the life cycle.
Innovation and Technology: A Cyclical Model of Technological Change
Era of Incremental Change -> Technological Discontinuity -> Era of Ferment -> Dominant Design -> Era of Incremental Change
Examples of Old Technology
Typewriter
VHS Tape
Landline Phone
Film
Encyclopedia
Examples of New Technology
Computer
DVD/Blueray
Smart Phone
Digital Imaging
Internet
Examples of Old Technology
Technology allows us to automate the assembly line, so masses of unskilled labour are much less needed. Large firms are also outsourcing much of their activities. So, given that the conditions under which jobs were created have changed, we are redefining not just organizational structure, but also how work should be performed.
