Class 4: Industry Analysis Flashcards
Is industry structure unstable or stable?
fairly stable, tells a great deal about the business environment
What is the essence of the job of the strategist?
cope with competition
- managers tend to view competition too narrowly
- customers, suppliers, potential entrants and substitute products are all in the fight for products
Complete the sentence!: Porters 5 forces is useful in analyzing…
Industry Profitability!
- Not firm profitability, which depends on competitive positioning
- Systematically identify opportunities and threats
- anticipate changes in industry; leverage to firms benefit
Complete the sentence!: The stronger the 5 forces, the lower the industry’s…
Profit potential!
What are the 5 forces?
- Threat of new entrants
- Bargaining Power of buyers
- Threat of substitute products and services
- Bargaining power of suppliers
- Rivalry among existing competitors
What are threats to industry profits bc of low barriers to entry?
1) No economies of scale
2) No learning curve
3) No switching costs
4) No network effects
5) No customer loyalty
6) Minimum startup costs
7) Equal access to inputs
8) Equal access to distribution
9) No history of incumbent aggression
10) limited government restrictions (kind of)
What is another way to describe barriers to entry according to warren buffet?
an economic moat!
How can suppliers limit total economic surplus?
raising prices or limiting quantity
what are threats to industry profits influenced by supplier-side things?
- concentrated groups of suppliers limits price comparison
- high switching costs
- differentiated inputs- few substitutes
- customers are smaller, diversified
- suppliers can integrate forward
How can buyers take greater consumer surplus?
by lowering prices or demanding more
What do powerful buyers typically demand?
lower prices but sometimes higher quality and/or greater service, too
What threats do buyers pose to industry profits?
- limited number of buyers lead to volume discounts
- undifferentiated profits
- no switching costs
- suppliers can integrate forward or backward
When are customers price sensitive?
1) purchase is a large % of total income
2) unprofitable, or strapped for cash
3) input has little influence/little
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Why are substitutes easy to overlook?
may look very different from industry’s product
what are threats to industry profits from substitutes?
attractive price-performance tradeoffs
low switching costs
