Competitive Forces Flashcards
Q: What are the key definitions of a market?
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).
Q: What distinguishes an industry from an industry segment?
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).
Q: What strategic decisions should companies make regarding industries and markets?
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.
Q: How can companies from different industries compete in the same market?
A: Companies from different industries might serve the same market with different products or services (e.g., building companies vs. DIY tool retailers).
Q: What are characteristics of fragmented industries?
A:
Firms are small and each has a small market share.
Examples include dry cleaning services, hairdressing, and shoe repairs.
Q: What are characteristics of mature industries?
A:
Products are in the mature phase of their life cycle.
Examples include automobile manufacture and soft drinks production.
Q: What is the purpose of Porter’s Five Forces model?
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.
Q: What defines emerging industries?
A:
Newly developing with potential for significant growth.
Examples include the global space travel industry and telecommunication in Africa.
Q: What factors determine the threat from potential entrants in a market?
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.
Q: What defines declining industries?
A:
Sales are falling, and the number of competitors is decreasing.
Example: Coal mining in Europe.
Q: What is industry convergence and its types?
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.
Q: What factors contribute to the threat from substitute products?
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).
Q: What are characteristics of global industries?
A:
Operate on a global scale.
Examples include the microprocessor industry and professional football.
Q: What factors increase the bargaining power of customers?
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.
Q: What factors contribute to strong competitive rivalry within an industry?
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.
Q: Under what conditions is the bargaining power of suppliers strong?
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.
Q: How does the Growth phase impact a product’s market position and financials?
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.
Q: How does Porter’s Five Forces model apply to the market for legal services?
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.
Q: What are the four classical stages of the product life cycle, and what are their main characteristics?
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.
Q: What are the defining features of the Maturity phase, and how might a company try to extend it?
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.
Q: What are the main cost considerations during each phase of the product life cycle?
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.
Q: What factors contribute to the Decline phase of a product life cycle, and what strategies can companies use to manage it?
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.
Q: How can the product life cycle concept aid in strategic management decisions?
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.
Q: What is the cycle of competition, and how does it affect market dynamics?
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.
