Competitive Forces Flashcards

1
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Q: What are the key definitions of a market?

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A:

Product Market: Defined by the products or services sold (e.g., fashion clothes, banking).
Customer Market: Defined by the customers or potential customers (e.g., consumer market, youth market).
Geographical Market: Defined by the geographic area (e.g., North American market, European market).

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2
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Q: What distinguishes an industry from an industry segment?

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A:

Industry: A group of firms producing similar goods/services (e.g., automobile industry, insurance industry).
Industry Segment: A part of an industry with specific characteristics (e.g., automobile assembly vs. parts manufacturing).

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3
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Q: What strategic decisions should companies make regarding industries and markets?

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A:

Industry Selection: Deciding which industry or industries to operate in.
Market Selection: Deciding which market or markets to target for selling goods or services.

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4
Q

Q: How can companies from different industries compete in the same market?

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A: Companies from different industries might serve the same market with different products or services (e.g., building companies vs. DIY tool retailers).

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5
Q

Q: What are characteristics of fragmented industries?

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A:

Firms are small and each has a small market share.
Examples include dry cleaning services, hairdressing, and shoe repairs.

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5
Q

Q: What are characteristics of mature industries?

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A:

Products are in the mature phase of their life cycle.
Examples include automobile manufacture and soft drinks production.

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6
Q

Q: What is the purpose of Porter’s Five Forces model?

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A: Porter’s Five Forces model is used to analyze the strength of competition in a market. It helps explain why some industries are more profitable than others by examining five key competitive forces.

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6
Q

Q: What defines emerging industries?

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A:

Newly developing with potential for significant growth.
Examples include the global space travel industry and telecommunication in Africa.

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7
Q

Q: What factors determine the threat from potential entrants in a market?

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A: The threat from potential entrants is influenced by:

Barriers to Entry: Factors such as economies of scale, capital investment requirements, access to distribution channels, time to establish, know-how, switching costs, and government regulations.
Ease of Market Entry: Lower barriers lead to higher threats from new entrants, while higher barriers reduce the threat.

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7
Q

Q: What defines declining industries?

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A:

Sales are falling, and the number of competitors is decreasing.
Example: Coal mining in Europe.

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8
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Q: What is industry convergence and its types?

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A:

Two or more industries or industrial segments converge, and become part of the same industry,
with the same customer markets. When convergence is happening, or might happen in the future, this can have
a major impact on business strategy

Demand-Led Convergence: Driven by customers perceiving products as interchangeable or complementary.
Supply-Led Convergence: Driven by suppliers recognizing technological links between industries.

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8
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Q: What factors contribute to the threat from substitute products?

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A: The threat from substitute products is higher when:

Ease of Substitution: Customers can easily switch to alternatives (e.g., gas vs. electric heating systems).
Availability of Substitutes: The presence of viable substitutes (e.g., plastic containers replacing glass).
Consumer Preference: Changes in consumer preferences toward substitutes (e.g., typewriters replaced by personal computers).

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9
Q

Q: What are characteristics of global industries?

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A:

Operate on a global scale.
Examples include the microprocessor industry and professional football.

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10
Q

Q: What factors increase the bargaining power of customers?

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A: Customer power is strong when:

High Purchase Volume: The volume of purchases is significant relative to the supplier.
Undifferentiated Products: Products from different suppliers are similar.
Low Switching Costs: Switching to a new supplier is inexpensive.
Significant Cost: The cost of the purchased item is a large portion of the buyer’s total costs.
Low Buyer Profits: The buyer’s profitability is low.
Non-Significant Quality Impact: Buyer’s product is not significantly affected by the quality of purchased goods.
Full Information: Buyers have complete information about suppliers and prices.

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10
Q

Q: What factors contribute to strong competitive rivalry within an industry?

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A: Rivalry is strong when:

Similar Firm Size: Firms are of similar size and strength.
Many Competitors: There are numerous competitors in the market.
Slow Market Growth: Sales demand grows slowly.
Undifferentiated Products: Products are similar across competitors.
High Fixed Costs: Firms have high fixed costs requiring price reductions to maintain profitability.
Large Capacity Increments: Supply capacity increases only in large amounts.
High Exit Costs: Costs of leaving the industry are high, making firms reluctant to exit.

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10
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Q: Under what conditions is the bargaining power of suppliers strong?

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A: Supplier power is strong when:

Few Suppliers: There are few suppliers in the market.
No Substitutes: No alternatives for the supplied products.
Differentiated Products: Supplier’s products are unique or better.
Important Component: Supplier’s product is crucial for the end product.
Non-Significant Customer: The industry is not a major customer for the supplier.
Forward Integration: Suppliers can enter the market as competitors.

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11
Q

Q: How does the Growth phase impact a product’s market position and financials?

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A: During the Growth phase:

Sales: Increase significantly as the product gains acceptance.
Market Entry: New competitors enter the market, attracted by growing demand.
Profits: Begin to rise as sales volumes increase and production costs decrease due to economies of scale.
Challenges: Managing increased production capacity, handling competition, and maintaining product quality.

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11
Q

Q: How does Porter’s Five Forces model apply to the market for legal services?

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A:

Threat from Potential Entrants: Low due to the need for qualifications and time to build a client base.
Suppliers’ Bargaining Power: Non-existent as solicitors have no significant suppliers.
Customers’ Bargaining Power: Low, as firms have a large customer base.
Threat from Substitutes: Low, with few substitutes except ‘do-it-yourself’ legal work.
Competitive Rivalry: Weak, as firms do not typically compete on fees.

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12
Q

Q: What are the four classical stages of the product life cycle, and what are their main characteristics?

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A: The four classical stages are:

Introduction:

Sales: Low and growing slowly.
Costs: High due to investment in development, marketing, and distribution.
Profitability: Not yet profitable.
Growth:

Sales: Rapidly increasing.
Costs: Stabilize or reduce as economies of scale are achieved.
Profitability: Profits begin to emerge.
Maturity:

Sales: Stabilize at a high level.
Costs: Costs are stable, but marketing and product enhancement costs may increase.
Profitability: Profits stabilize, and growth opportunities are limited.
Decline:

Sales: Decrease.
Costs: May increase due to lower sales volumes or higher discounting.
Profitability: Declines, and companies may exit the market.
Q: What are the key characteristics and challenges of the Introduction phase in the product life cycle?

A: Characteristics and challenges of the Introduction phase:

Sales Demand: Low initial sales as the market is not fully aware of the product.
Investment Costs: High costs for research and development, production setup, and initial marketing.
Profitability: The product typically operates at a loss as it is not yet profitable.
Challenges: Building market awareness, establishing distribution channels, and educating potential customers.

13
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Q: What are the defining features of the Maturity phase, and how might a company try to extend it?

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A: Features of the Maturity phase:

Sales: Stabilize at a high level but may not grow further.
Prices and Profits: Stabilize due to competitive pressures.
Opportunities for Growth: Limited, but product updates and innovations can help extend the phase.
Strategies to Extend Maturity:
Product Differentiation: Updating features or improving design.
Market Segmentation: Targeting new customer segments.
Promotions: Implementing marketing campaigns or loyalty programs.

14
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Q: What are the main cost considerations during each phase of the product life cycle?

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A: Cost considerations include:

Introduction:

Manufacturing Costs: High due to lack of economies of scale.
Marketing Costs: Significant spending on promotions and brand awareness.
Distribution Setup: Costs for establishing distribution channels.
Growth:

Capacity Expansion: Costs related to increasing production capabilities.
Working Capital: Higher investment in inventory and receivables.
Marketing Costs: Continued investment to expand market share.
Maturity:

Maintenance Costs: Costs to sustain production and quality.
Product Enhancement: Investment in improvements to maintain competitiveness.
Decline:

Withdrawal Costs: Costs associated with discontinuing the product (e.g., decommissioning assets).
Discounts: Offering discounts to attract remaining customers.

14
Q

Q: What factors contribute to the Decline phase of a product life cycle, and what strategies can companies use to manage it?

A

A: Factors contributing to the Decline phase:

Sales: Start to fall due to changing consumer preferences or technological advancements.
Profits: Decline as sales drop, and companies may reduce prices to clear inventory.
Exit Strategies: Companies may choose to exit the market, divest the product, or find niche markets.
Management Strategies:
Cost Control: Reducing operational costs.
Discounts: Offering price reductions to maintain sales.
Product Revitalization: Updating or rebranding to appeal to remaining customers.

15
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Q: How can the product life cycle concept aid in strategic management decisions?

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A: Strategic management decisions aided by the product life cycle concept:

New Product Development: Deciding when to develop and launch new products based on lifecycle stages.
Market Entry Timing: Timing market entry to capitalize on the Introduction or Growth phases.
Market Exit Decisions: Evaluating when to exit markets based on the Decline phase.
Strategic Adjustments: Making adjustments to strategies for growth or cost management depending on the life cycle stage.

16
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Q: What is the cycle of competition, and how does it affect market dynamics?

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A: The cycle of competition involves:

Competitive Actions: Companies continuously attempt to outperform each other through product improvements, price reductions, or quality enhancements.
Market Impact:
Prices: May decrease as competitors lower prices.
Quality: Can improve as companies invest in better products or features.
Quality Decline: In the Maturity or Decline phases, reduced prices may lead to decreased product quality.

16
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Q: What are the benefits of life cycle costing in product management?

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A: Benefits of life cycle costing:

Profitability Assessment: Evaluates potential profitability before large investments.
Cost Control: Identifies and manages costs over the product’s entire life.
Pricing Strategy: Helps set prices to cover costs and achieve desired profits.
Faster Market Entry: Encourages quick market entry to gain competitive advantage and reach breakeven faster.
Performance Improvement: Provides insights for improving future products based on performance data.

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18
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Q: How can market positioning in terms of price and quality help identify strategic spaces?

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A: By mapping the market positions according to price and quality, gaps can be identified. For example, if there are no firms offering high-quality products at low prices, a company might target this strategic space.

18
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Q: What are some ways products can be differentiated?

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A: Products can be differentiated by:

Design
Pricing
Branding
Delivery Methods: Such as in-store vs. online, or branch network vs. internet services.

18
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Q: What is a strategic group?

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A: A strategic group is a cluster of firms within an industry that have common specific assets and follow similar strategies in key decision variables. They operate with similar approaches and resources in their markets.

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20
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Q: What is a strategic space?

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A: A strategic space is a gap in the market not currently filled by any strategic group. Identifying this space can provide opportunities for new strategic initiatives to fill the gap.

21
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Q: What is market segmentation?

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A: Market segmentation is the process of dividing the market into distinct segments based on unique and identifiable characteristics and needs to develop targeted products for each segment.

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23
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Q: How is market growth and market share measured in the BCG Matrix?

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A:

Market Growth: Typically measured as the annual growth rate of the market. A growth rate above 10% is considered high; below 10% is considered low.
Market Share: Measured as the annual sales of the product or business unit as a percentage of the sales of the biggest competitor. A high market share indicates a leading position in the market.

24
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Q: What are some methods of market segmentation?

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A: Methods include:

Geographical Area
Quality and Performance
Function: Running shoes, football boots, etc.
Type of Customer: Consumers vs. commercial customers
Social Status or Social Group
Age: Adults, teenagers, etc.
Lifestyle: Single people, married couples, retired individuals, etc.

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26
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Q: What is the purpose of the Boston Consulting Group (BCG) Matrix?

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A: The BCG Matrix is used for strategic planning to allocate funds among different products or business units. It helps select optimal strategies for individual products or units and ensures consistency with overall corporate objectives. It is a 2 × 2 matrix representing market growth and market share.

26
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Q: What characterizes a “Star” in the BCG Matrix?

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A: A “Star” has a high market share in a high-growth market. It is a market leader but requires significant investment to maintain its position. Over time, stars are expected to become self-financing and eventually generate high returns.

27
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Q: What are the two axes of the BCG Matrix?

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A: The two axes are:

Market Growth: Measures the rate of market growth, often with 10% as a midpoint.
Market Share: Measures the relative market share of the product or business unit compared to the largest competitor.

28
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Q: What characterizes a “Question Mark” in the BCG Matrix?

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A: A “Question Mark” is a product with a low market share in a high-growth market. It requires substantial investment to increase market share but may not be profitable yet. Strategic decisions involve investing heavily to increase market share or withdrawing from the market if cash flows are negative.

28
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Q: What are some criticisms of the BCG Matrix?

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A: Criticisms include:

Market Share Dependency: Assumes that competitive strength depends solely on market share, which might not always be true.
Market Growth Assumptions: Assumes high market growth is the only indicator of attractiveness, which might overlook other factors.
Market Definition: Difficulties in defining market boundaries and competition.
Segment Analysis: Better suited for analyzing strategic business units (SBUs) and market segments rather than entire markets.
Growth and Share Definitions: Ambiguity in defining what constitutes “high” and “low” rates of growth and market share.

28
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Q: What characterizes a “Cash Cow” in the BCG Matrix?

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A: A “Cash Cow” is a product in a low-growth or mature market with a high market share. It generates substantial cash inflows due to high economies of scale and efficiency. Cash cows should provide the cash needed to invest in question marks and stars.

29
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Q: How might a company use the BCG Matrix to allocate resources?

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A: A company might use the BCG Matrix to:

Invest in Question Marks to increase market share and potentially turn them into Stars.
Maintain or withdraw from Dogs depending on their cash flow and profitability.
Leverage Cash Cows to fund new initiatives and support Question Marks and Stars.

29
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Q: What characterizes a “Dog” in the BCG Matrix?

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A: A “Dog” is a product in a low-growth market with a low market share. It may be losing money and using more cash than it generates. It may provide positive cash flows but should be evaluated for potential closure or discontinuation. Investing more in dogs is generally discouraged.