External environment

Question 1

general environment - analyze with ______

Answer 1

PESTEL

Question 2

industry environment - analyze with ______

Answer 2

Porter’s 5 forces

Question 3

barriers to entry: economies of scale

Answer 3

lower cost per unit
can be developed in virtually any activity
varies by industry

Question 4

barriers to entry: product differentiation

Answer 4

aka brand image 
- harder to make headway
- many have to lower prices to compete
unwillingness to buy
- limits the price newcomer can command

Question 5

barriers to entry: customer switching costs

Answer 5

fixed costs incurred by buyer when suppliers are changed

larger switching costs => harder for new entrants

Question 6

barriers to entry: unequal access to distribution channels example

Answer 6

chobani: now large % is greek yogurt (~36%)
muscled out plain yogurt cousins, pudding, margarine
- something must be removed to make room
- shelf space is so valuable that containers (ie margarine) shapes are changed to utilize space (round => square)

Question 7

barriers to entry: government policy example

Answer 7

pharmaceutical patents end => generics come in

- after patent expired, oxycotin “unable to abuse” version

Question 8

exert power with high $ and limited quality

Answer 8

suppliers

Question 9

exert power with low $ and high demand for quality

Answer 9

buyers

Question 10

2 industries in Cola wars:

Answer 10

1. Coke and Pepsi (concentrate producers)

2. bottlers

Question 11

airlines

Answer 11

least profitable industry and forces explain why (strong 5 forces)
“sexy” does not drive profit. underlying strategy drives profit.

Question 12

Walmart & Porter’s 5 forces

Answer 12

business level strategy = low prices (“always” emphasis on price)
worlds largest retailer
11,000 retail units under 55 different banners in 27 countries (4600 units in US)
2014 revenue = 476.3 billion
2.2 million associates worldwide (1.3M US)
discount retailing in mid 1950s
Sam Walton opened in 1962

Question 13

4 advantages of Walmart

Answer 13

1. suppliers willing to make damaging concessions because of ready-made markets (immediate access)
2. must increase efficiency to meet low price standards (ex. Levi)
3. jump in sales
4. honest company (pays bills on time)

Question 14

3 disadvantages of Walmart

Answer 14

1. make a lot of concessions - barely make margins
2. if dont meet demands => give up things (outsourcing, sell parts)
3. big brands diluted (vlasik, levi)

Question 15

Walmart retailing format

Answer 15

discount store - average size 91,000 sq ft
supercenter
neighborhood markets
SAMs club
walmart.com

Question 16

Walmart: 4 competitive advantages - all aligned with low $ strategy

Answer 16

1. procurement
2. distribution
3. merchandising
4. pricing

Question 17

Walmart: procurement

Answer 17

buy into system - useful for suppliers (relationships with >100K suppliers)
emphasis: frugality
retail - 8% out of stock + 1/3 sale
- retail link system => trends, inventory, stocking

Question 18

Walmart: distribution

Answer 18

• strategic locations - 158 distribution centers - each within a day’s drive
• hubs in a hub and spoke network
• 1M sq. ft. avg. investment $70M
• cross docking $RFID on product cases
• distribution costs 2-3% rev vs. 4-5% for others (saves billions)

Question 19

Walmart: merchandising

Answer 19

• emphasis on hard goods rather than soft goods (hard Gs PM > soft (seasonal => sale))
• national and private label brands
• more variety & tight invt. control

Question 20

Walmart: pricing

Answer 20

• EDLP set nationally w/ flexibility for store managers
• daily price check on competitors
• 2-4% differential up to 10% vs. supermarkets
• Target differentiates via up-scale w/ designers & partnerships

Question 21

Walmart: people

Answer 21

• mixed record
  labor: profit sharing managers
  anti union (need to keep wages low to keep $ low) ex. meat cutters
• Litigation
  off the clock work
  gender discriminatory class action lawsuit
  “tap on shoulder” promotion system (~^M females)

Question 22

Walmart: future trends

Answer 22

• smaller
• harder to penetrate cities
• take over transportation of suppliers
• recapture Mr. Sam’s formula “its back”
• LT - new markets:
  - online
  - alcohol
  - gas
  - finc. services (W2W, bluebird)

Question 23

Suiting up against the big boys (plank and under armor)

Answer 23

“performance apparel” didnt exist before UA
1 man show until kipp joined
turning point w/ “any given sunday” movie and espn ad.
tom brady as spokesman

Question 24

Amazon

Answer 24

• initially didnt collect sales tax bc no physical operation in state.
  
  • adv. eroded over time
  • major concern for 1. brick&mortar 2. states
• set up in WA bc low pop.
• now: big battleground = shipping (1day), launching 1 hr. shipping in NYC

Question 25

Selling items on smartphone

Answer 25

$22 B revenue on apps for only apple and google

- must be able to predict/project trends

Question 26

McDonald’s sales

Answer 26

• declining to healthier/gourmet chain alts. => losing biggest group (20-30yr olds)
• hard to change bc of large and complex supply chain