L4M2 Chapter 2 Flashcards
What is a Market?
A Market is a place where goods are bought and sold
or
Where buyers meet sellers to trade products and services.
This can relate to a specific location or to the general economic environment
What is an Industry?
An industry is formed to service a market and is made up of segments which are groups of organisations that share common characterics requried by the buyer
What are the three (3) Industry classifications?
Primary activities (extractive e.g. mining)
Secondary activities (manufacturing)
Tertiary activities (services)
What are the three (3) generic strategies for competing in an industry
or
Michael Porter’s suggested Generic Strategies for competing in an industry
Cost leadership
Differentiation
Focus on a narrow niche segment
How can every company be competitive?
Low Cost = Cost leadership & Cost Focus
Differentiation = Pure differentiation & differentiation focus
What is the meaning of segment?
A group of products or services that provide specific but different value for a buyer
Example car company→ car for low-income buyers looking for value for money and luxury car for people who are willing to pay more for owning a certain brand
What is segmentation?
Grouping different needs together and aiming for a product or service that meets the exact needs of one or more than one groups
Most markets can be segmented and this allows organizations to target their products with greater precision, which can lead to greater profit
Example: sugar for household vs sugar for Bakery
What are the four (4) variables that can lead to segment?
Product or service segment
Price levels (discounts), Features, Design, Packing, Performance
New vs replacement - example → products sold together or bundled with ancillary services i.e. washing machine with insurance
Buyer segments
Strategy: quality product *Size: Annual purchase value (Kraljic matrix) *Ownership: Influence the motivation of that company * Financial strength: Frequency of purchases *Order patterns *Consumer markets influence segment for buyers by their Lifestyles (exercise clothing), Language (DVDs newspapers), Purchase occasion (birthday or anniversary)
Channel/Distribution segments
Direct sale retail vs distributors *Direct marketing vs retail - selling directly to customers e.g. Amazon *Exclusive vs non-exclusive outlets - can affect bargaining power and require different activities e.g. Rolex in watches BMW in cars
Geographical segments
Localities, regios or countries: water companies can serve locally only *Weather zones: different weather climate countries *Country groupings: countries packing or logistical infrastructure
What are the questions to ask when creating new segments?
What impact will this have on competitive advantage?
Can other technologies or product designs deliver buyer needs in a better way?
Can the product or service be enhanced to provide better value?
Can the needs of some buyers be better met by reducing the number of functions the product or service delivers at the same time as reducing the price?
Are there other bundles of products or services and ancillaries?
Are different channels available for reaching additional buyers or serving existing buyers more effectively?
Why are segments important in Procurement and supply analysis of a market?
They help shape and manage supply markets
They help identify specific market segments and find suppliers who have the best capabilities
Encourage new entrants who will create price pressure
List three ways of segmenting a market?
Grouping needs based on buying groups
Grouping needs based on distribution channels
Grouping needs based on geography
What is a value chain and the benefits of analyzing it for Procurement?
A value chain is a way of summarizing the major activities (both primary and secondary) of any organization
By analysing the value chain for key suppliers, a procurement professional can gain an important insight into how suppliers support the buyer’s business and also there might be cost reduction.
List the six (6) types of markets
Manufacturing
Construction
Retail
Finance
Agriculture
Services
What are the five (5) facotrs to analyze markets?
Objectives (achievement)
Drivers (key factors in objectives)
Governance (rules, structures to improve efficiency)
Ownership (desisicion-making power)
Commodity or Non-commodity (extent of the goods)
What is the meaning of manufacturing?
What are the key factors when analysing a manufacturing market?
Manufacturing is the transformation of raw materials and componets by mechnical, physical or chemical means into products that are sold to companies or to consumers
Objectives - Improve quality, Reduce costs, Increase flexibility
Drivers - Differentiated and intelligent products, Reduce time to market, Increase productivity, Reduce costs by doing more with less
Governance - Fragmented supply chains with suppliers forming collaborative networks
Ownernship - Predominantly shareholders
Commodity or non-commodity - Raw materials (commodity), Components and finished products (non-commodity)
What are the generic issues that affect manufacturing markets?
Require investment and access to skilled workforce, raw materials and components
High capital cost and time to build network of suppliers
Low profitability. Barriers to entry are high
No immediate substitutes (goods which can replace)
High switching costs
What are the two (2) main groups that manufacturing companies fall into?
Group 1 - Large oranisations whose bargaining power is high → provide raw materials e.g. steel
Group 2 - Fragmentd with smaller suppliers with little bargaining power → provide components
What are the two (2) largest segments of the construction market?
Residential - industrial and commercial buildings
Infrastructure - roads, bridges and railways
What are the key factors when analysing the construction market?
Objectives - Encourage investment, Reduce regulatory risks, Improve timeliness and quality, Encourage innovation
Drivers - Stage of economic cycle, Access to commodities, Quality of the supply chain (tier 2&3 subcontractors), Availabiltiy of skilled staff, Energy and resource efficient materials (sustainability)
Governance - Architects, contractors and manufacurers. Client led
Ownernship - Partnerships, Shareholders
Commodity or non-commodity - Materials (commodity), Services (non-commodity)
What are the generic issues that affect construction markets?
High barriers to new entrants - experience and reputation
No immediate substitutes (goods which can replace) although there are substitues for materials and components, there are no substitues for construction itself
Low switching costs - bargaining power of suppliers is low
Small contracts - high buyer bargaining power
Large contracts - low buyer bargaining power
Infrastructure construction (roads, bridges and railways) - *poor levels of productivity *project performance *skilled labour *Going green (sustainability)
What are the eight SIC subdivisions covering the retail industry?
Buidling materials
General merchandise
Food stores
Automible sales and gasoline service stations
Apparel and accessories
Home furniture, furnishings and equipment stores
Eating and drinking places
Miscellaneous retail
What are the key factors when analysing the retail market?
Objectives -Grow market share, Increase brand awareness, Enhance customer relationships, Introduce new products
Drivers - Economic growth, Identify customer needs, Rise in social media shifting power to consumers
Governance - Lagre retail groups using a global network of smaller suppliers
Ownernship - Franchises, Sole traders, Shareholders
Commodity or non-commodity - Food (mix of commodity and non-commodity), Other retailers (non-commodity)
What are the generic issues that affect retail markets?
Barriers to entry is high - threat of new entrants depend on whether segment requires physical presence or online
Substitues are high - several alternatives open to buyer
High supplier bargaining power - Large and global firms can determine the price they charge and also where to place their product on retail shelves
Limited price increases - buyers have significant choice and can choose from the many alternative sources for the same or similar products
Intense competition
What are the three (3) main segments in the financial service industry?
Financial services - banks, building societies, savings banks and credit unions
Insurance, re-insurance and pension funding - life insurance, travel insurance, health insurance, property insurance, tranpsort insurance and liability insurance. It also includes employee benefits, pensions and retirement plans
Auxiliary activities - financial markets such as commodity and futures contracts and stock exchanges, brokerages, insurance agents and insurance loss adjustment