Lecture 2: Industry analysis Flashcards
Name 2 pespectives of strategic management
Business level strategy-
determined at individual business level and competitiveness is driven by excellent resources or industry positioning.
Corporate level strategy-
determined by balance and mix of individual businesses, it focuses on product, patterns, and geographic scope.
Does industry matter for firm performance?
Yes, empirically speaking industry does influence firms performance. But internal capabilities of companies matter as well- performance influence.
Nowadays, may industry-wide effects happen, which can strongly influence companies in the same industry sectors and can either damage or improve performance. (ex. dropping share prices, revenue decrease, certain markets)
Industrial Organisational Economics factors
*Market power-
degree to which firms can influence market prices.
*Barriers to entry and mobility-
obstacles that prevent firms from entering industries.
*Price discrimination-
practice of charging different prices to different customers.
*Innovation-
helps to improve market outcomes, drive competition
* M&A-
strong impact on market power, consumer well-being and competition.
*Government regulations-
exist to address market failures, promote fair competition.
*Antitrust law-
promote competition, protect customers
*Network effects-
idea: “service becomes more valuable if people use it”
*Information asymmetry-
idea: “one party in a transaction has more info than the other”
Market concentration
Related to IOE factors. Measures extent to which market shares are concentrated between small nr of firms.
High market concentration:
only couple of firms control/are responsible for majority of market.
Advantages of high market concentration for firms:
use the bargaining power, economies of scale, regulations capture, innovation use.
3 types of generic strategy
- cost leadership
- differentiation
- focus (either cost or differentiation focus)
Cost leadership strategy and its benefits
Core word- VOLUME
Suitable for companies that operate in industries that are close to perfect competition.
Main goal: create a value chain to achieve low-cost structure without lowering customer willingness to pay.
Benefits:
*Economies of scale- increase production volume to save money
*Learning curve effects- expertise to become better and efficient in production.
*No-frills companies- minimalistic approach of doing business, limit core activities, do not pay extra)
Differentiation strategy
Core word- CUSTOMER LOYALTY
Suitable for “conspicuous consumption”- purchasing goods and services for specific purpose to display wealth.
Develop a product that customers value, experiment with quality, brand, taste, image, design.
Willing to pay higher price. (Perceived added value or real added value)
Focus strategy
Core word- MANAGERIAL DISCIPLINE
Focuses on particula niche segment.
Works because different user segments have different needs, specific: not covered by generic brands.
Can charge a price premium for that.
First mover advantage
Ability to innovate, assertive company to achieve a sustainable competitive advantage by establishing a new business model or braking grounds on entirely new product/service.
Ex. Gillete, Nestle for Nescafe, Netflix.
3 main sources/reasons to become first mover
- Technological dominance
Have more time to develop technological knowledge.
ex. ASML - Pre-empting asset positions
buying up critical assets before competitors notice their value
*Pre-empting asset and locations- invest in production capacity, equipment, real estate.
*Pre-empting market space-
invest in socio-cognitive market space, economic product market space. - Buyer switching costs
*Transaction specific investments
ex. printers sold below cost to profit from ink cartridges.
*Search costs
*Contractual switching costs
ex. phone discount for telecom subsc.
Classic strategy process 3 phases
- Goal-setting phase
identify mission, vision, purpose - Analytical phase
analyse multiple aspects of SWOT, 5 forces, value chain. - Synthesis phase
generating opinions, evaluating options, implementation and control.
Platforms and industry structure
Platforms enabling value-enhancing interactions between independent users by connecting supply (producer) and demand (customer). Can mutually reinforce network effects.
Because of strong network effects on both sides- natural monopolies or duopolies can emerge.
Disruptive power of platforms
High disruptive power because they are infinitely scalable- marginal cost of adding new transaction are almost non-existent. Data based tools to gain feedback (ex. Ratings).
Uncover new sources of value creation- ex. unoccupied production capacity.
Invert business in a way that customers themselves are responsible for marketing, producing, financing.
Examples of platform economy
*Envelopment- ex. hotels in Trivago, restaurants in TripAdvisor.
*Governance- %euros transferred to Booking.com for transaction
*Disruption- “no assets” models
ex. Airbnb, Uber
*Boundary blurring- no convergence between Google, Amazon, Meta
*Standards- Android, Blockchain
*Appropriation strategies- using freemium/premium, in-app purchases
