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.
