L4M2- Chapter 2- Understand market management Flashcards
An industry is formed to service a market but what makes up industries?
Industries are made up of segments which are groups of organisations that share common characteristics
What is a market?
A market is where buyers meet sellers to trade products/ services.
What are the 6 industrial sectors?
Manufacturing
Construction
Financial
Agriculture
Retail
Service
They can also be divided into 3 groups primary, secondary and tertiary.
What is the difference between primary, secondary and tertiary sector?
Primary- Extract raw commodities
Secondary- Process raw commodities or manufacture
Tertiary- Service industry
They can be classified by SIC (standard industry classification)
What are the 3 generic strategies for competing in an industry?
Cost leadership
Differentiation
Niche Segments
What is a market?
What is an industry?
What is a segment?
A market is where buyers and sellers meet.
An industry is formed to service a market.
A segment is where individual organisations operate within. An organisation could play in multiple segments.
E.g. Coca Cola play in the Secondary area (manufacturing drinks) but are an organisation that sit in the grocery retail industry. They sit in different segments to service different customer needs- water, juices and carbonated drinks
What are some of the ways in which segments are segregated in a market?
A group of products or services that provide specific but different value for their buyers is called a segment.
1) Product/ Service- Could be about the size of product (large construction equipment for a quarry vs smaller for houses), could be the price levels, features, packaging, performance
2) Buyer segments- based on who is buying the product e.g. the age, income, size of household.
3) Distribution channel- Depending on how the and who you are selling to for example direct sale vs distributers, selling through retailers vs selling directly to customers (amazon)
4) Geography- Required attributes may differ based on location, routes, climate zones, country requirements etc
When analysing specific markets there are a number of factors that should be considered- what are they? (hint ODGOC)
Objectives- What is the goal to achieve
Drivers- which factors affect those objectives
Governance- rules/ structures that are in place
Ownership- who has decision making powers
Commodity/non commodity- are the goods/ services commodities
Summarise the manufacturing sector
Hint- think about objectives, drivers, governance, ownership, commodity, challenges and porters 5 forces (e.g. how hard is it for new entrants)
Manufacturing is the transformation of raw materials and components into products that are sold to consumers or companies.
Can be broadly split into 2 groups- large organisations with high bargaining power (e.g. Steel). Second group is more fragmented and tend to be smaller suppliers who provide components.
Very large and diverse market segment
Generic issues in the segment include: investment into machinery, requirement for a skilled workforce, high capital/upfront costs, low profitability, low substitutability and potential for high switching costs
Example would be the automotive industry
Summarise the construction sector
Hint- think about objectives, drivers, governance, ownership, commodity, challenges and porters 5 forces (e.g. how hard is it for new entrants)
The two largest segments within construction are the residential/industrial/commercial buildings and the heavy infrastructure of roads, bridges and railways.
Barriers to entry are experience and reputation. Both of which take time to acquire if you are new to the field.
For large requirements contracts there are few companies which have the capabilities which means the bargaining power of the supplier is much higher. BUT there is often competitive tendering for contracts which can lower prices.
There are some challenges to the industry including poor levels of productivity, requirement to improve project performance, shortage of skilled labour and challenges with sustainability.
Often architects, contractors, manufacturers
Summarise the retail sector
Hint- think about objectives, drivers, governance, ownership, commodity, challenges and porters 5 forces (e.g. how hard is it for new entrants)
Includes building materials, general merchandise, food stores, automobile (inc petrol service station), apparel, home furniture, restaurants and miscellaneous
New entrants depends on whether it is online (where website set up is required) or brick and mortar (which requires significant investment)
High substitutability. Buyers are normally individuals with choice
High competition- think about food retail
Summaries the financial sector
Hint- think about objectives, drivers, governance, ownership, commodity, challenges and porters 5 forces (e.g. how hard is it for new entrants)
Creation, liquidation or change of ownership of financial assets e.g. shares, bonds and derivatives.
Customers can be individuals, businesses, non profit organisations or the public sector
3 main segments:
1) Financial services- banks, building societies etc
2) Insurance and pensions- life/travel/health/property insurance, employee benefits, pensions, retirement plans
3) Auxiliary services- commodity and futures contracts, stock exchanges, brokerages
Given the diversity analysis into the sector has to be very specific e.g. looking at purely retail banking. Individual customers have little to no bargaining power with banks. Banks tend to have similar offers so rivalry is often based on reputation.
Summarise the agriculture sector
Hint- think about objectives, drivers, governance, ownership, commodity, challenges and porters 5 forces (e.g. how hard is it for new entrants)
Includes crops, livestock, agricultural services (e.g. veterinary services), forestry and fishing
Often difficult barrier to entry due to significant investment in land/machinery and margins are often low.
Buyers are often large e.g. food retail stores, who will have a high level of bargaining power.
Summarise the services sector
Hint- think about objectives, drivers, governance, ownership, commodity, challenges and porters 5 forces (e.g. how hard is it for new entrants)
Most diverse of all the sectors and covers info/comms, professional/scientific/technical services, admin/support and ‘other’ services.
Main barrier to entry is the level of knowledge/skill required as the set up costs are low.
It can be hard to directly attribute costs to a service so buyers often just pay the going rate
Often high levels of competition as there will be many suppliers and switching costs are low
What are the 5 competitive forces in a market?
(hint- porters 5 competitive forces)
1) new entrants
2) Bargaining power of buyers
3) Threat of substitute products/services
4) Bargaining power of suppliers
5) Rivalry amongst existing suppliers
