Industry Dynamics

Question 1

What are the 5 stages of the industry life cycle model

Answer 1

Development 
Growth 
Shake-out 
Maturity
Decline

Question 2

Strategy in Embryonic (development) Industry

Answer 2

• 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:

Question 3

Fragmented industry conditions

Answer 3

• Large number of smaller firms

- Little direct price competition between competing products/services

Question 4

-Large number of smaller firms

Answer 4

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.

Question 5

Little direct price competition between competing products/services

Answer 5

Multiple formats or standards
High transportation costs for products
Individually customised products

Question 6

Strategy in Growth Industries

Answer 6

• Expect new entrants
• Keep up with industry growth
• Continue to innovate
• The need to fund growth may mean ongoing -investment is required

Question 7

Expect new entrants

Answer 7

Establish entry barriers
Build quality, brands, production capacity and channels to market
Patents where applicable

Question 8

Keep up with industry growth

Answer 8

Vacuum will be filled by competitors or new entrants

Occupy new market niches (customer groups, customer needs)

Question 9

Continue to innovate

Answer 9

Continue to invest in R&D

Anticipate and lead change

Question 10

Strategy at the Shakeout Stage

Answer 10

-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

Question 11

Characteristics of the Shakeout Stage

Answer 11

Slowing growth, financial sqeeze, mergers and some industry exits

Question 12

Consolidated industry conditions

Answer 12

• Characteristics
• Regulation and/or innovation can fragment a consolidated industry
• May proceed by chaining, franchising, horizontal mergers, using the internet

Question 13

Characteristics: Consolidated industry conditions

Answer 13

Relatively few industry competitors
Significant entry barriers
Established basis for comparison of competing products
One or few common standards

Question 14

Strategies in mature industry

Answer 14

-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 …….

Question 15

Characteristics of mature industry

Answer 15

Standard products, low growth and margins, few companies, high entry barriers

Question 16

Price signalling options: Managing price and competition in mature industries

Answer 16

-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

Question 17

Price leadership: Managing price and competition in mature industries

Answer 17

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

Question 18

Non-price competition

Answer 18

Firms compete aggressively on everything except price

Question 19

Features of declining industries

Answer 19

-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.

Question 20

Industry capacity and demand

Answer 20

Smooth adjustment of industry capacity is key to stability and profitability
-Excess capacity results in destructive competition

Question 21

Ease of adjustment of industry capacity depends on:

Answer 21

-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

Question 22

Strategy in Declining Industry

Answer 22

Leadership strategy
Niche strategy
Harvest strategy
Divestment strategy

Question 23

Leadership strategy

Answer 23

A firm seeks to become dominant in the industry (see Vacuum Tubes case).

Question 24

Niche strategy

Answer 24

Focuses on demand pockets declining more slowly than the industry as a whole.

Question 25

Harvest strategy

Answer 25

Limits investment and optimizes cash flow.

Question 26

Divestment strategy

Answer 26

Company exits the industry by selling out early to others, avoiding liquidation.