Industry Dynamics Flashcards
What are the 5 stages of the industry life cycle model
Development Growth Shake-out Maturity Decline
Strategy in Embryonic (development) Industry
- Differentiation is usually a priority
- Industry structure may be highly dynamic.
- Funding and time horizons need to reflect the high risks at this industry stage
- Firms may benefit from strategic alliances:
Fragmented industry conditions
- Large number of smaller firms
- Little direct price competition between competing products/services
-Large number of smaller firms
No one firm able to gain advantage that the firm can both sustain and reproduce.
Few economies of scale opportunities.
Localised markets with low entry barriers.
Little direct price competition between competing products/services
Multiple formats or standards
High transportation costs for products
Individually customised products
Strategy in Growth Industries
- Expect new entrants
- Keep up with industry growth
- Continue to innovate
- The need to fund growth may mean ongoing -investment is required
Expect new entrants
Establish entry barriers
Build quality, brands, production capacity and channels to market
Patents where applicable
Keep up with industry growth
Vacuum will be filled by competitors or new entrants
Occupy new market niches (customer groups, customer needs)
Continue to innovate
Continue to invest in R&D
Anticipate and lead change
Strategy at the Shakeout Stage
-Avoid over-investing in growth
-Maintain competitive position over short-term profit
-Expect strengthening price competition
Invest in process innovation to generate efficiency gains
-Maintain clear competitive position
Fuzzy ‘stuck in the middle’ strategy often a cause of failure at this industry stage
Characteristics of the Shakeout Stage
Slowing growth, financial sqeeze, mergers and some industry exits
Consolidated industry conditions
- Characteristics
- Regulation and/or innovation can fragment a consolidated industry
- May proceed by chaining, franchising, horizontal mergers, using the internet
Characteristics: Consolidated industry conditions
Relatively few industry competitors
Significant entry barriers
Established basis for comparison of competing products
One or few common standards
Strategies in mature industry
-Compete as the cost-leader; OR
-Pursue focus strategy aimed at growing market segments in the industry
May be able to create new growing segments e.g. ‘neutraceutical’ dairy products; OR
-Draw on ‘blue ocean’ framework to differentiate
E.g. commodity product integrated with added-value service).
-Lead ongoing innovation in the industry
-Manage price and competition …….
Characteristics of mature industry
Standard products, low growth and margins, few companies, high entry barriers
Price signalling options: Managing price and competition in mature industries
-Aggressive signal
Matching competitor price cuts threatens price war
-Collusive signal
Rapidly follow competitor price increase
Firms attempt to avoid price war and improve profitability
Price leadership: Managing price and competition in mature industries
All firms follow pricing decisions of one firm
Keeps prices profitable for the least efficient competitor
Maintains stability in the industry
Reduces incentives to improve efficiency
Non-price competition
Firms compete aggressively on everything except price
Features of declining industries
-Excess capacity.
-Lack of technical change
lack of new product introduction.
stability of process technology.
-Declining number of competitors
some entry as new companies acquire the assets of exiting companies cheaply.
-High average age of both physical and human resources.
-Aggressive price competition.
Industry capacity and demand
Smooth adjustment of industry capacity is key to stability and profitability
-Excess capacity results in destructive competition
Ease of adjustment of industry capacity depends on:
-Predictability of decline (more volatile = harder to predict)
-Exit barriers
Durable, specialised assets
Restructuring, decommissioning costs
Emotional attachment to the industry
-Strategies of surviving companies
Strategy in Declining Industry
Leadership strategy
Niche strategy
Harvest strategy
Divestment strategy
Leadership strategy
A firm seeks to become dominant in the industry (see Vacuum Tubes case).
Niche strategy
Focuses on demand pockets declining more slowly than the industry as a whole.
Harvest strategy
Limits investment and optimizes cash flow.
Divestment strategy
Company exits the industry by selling out early to others, avoiding liquidation.
