Market Entry Flashcards
Example: Migros/Coop vs Aldi/Lidl
M/C owned all prime locations to prevent entry, lobbied city councils, pressured suppliers, expanded low cost offering, consolidated the market
Planning entry (4 steps)
- Attractiveness of new market entry
- Choice of market (attractiveness, entry barriers)
- Choice of entry type (speed, prerequisites, M+A/JV/greenfield)
- Entry strategy (commitment, positioning)
Examples of Market Entry
- Aldi/Lidl vs Migros/Coop
- Blablacar vs Flixbus
Porters 5 Forces
- Potential new entrants (entry barriers)
- Substitutes (impact on price elasticity)
- Suppliers (bargaining)
- Buyers (bargaining)
- Competition within
(Government, regulation, taxation/policy)
P5F: Competition within the industry
- Structure of the market and extent of competition
- Concentration Ratio CR”X” = Market share of X largest companies in the market
- Herfindahl Index (<0.15 perfect competition, 0.15-0.25 monopolistic competition, 0.25-0.6 oligopoly, >0.6 monopoly)
P5F: Substitutes
Cross elasticity of demand, switching costs and product differentiation
P5F: Buyer power
- High concentration leads to high power
- better information -> higher power
P5F: Supplier power (4)
- High concentration -> high power
- locked purchasing relationships
- lack of alternatives
- unimportant customer
P5F: potential competitors
Market position is influenced by potential entrants (specific investments/sunk costs are important factors)
Barriers to entry (definition)
Factors allowing incumbents to earn positive economic profits while making it unprofitable to enter
Types of Barriers to entry (2)
Structural and
Strategic
Structural entry barriers (3)
- Control of essential resources
- Economies of scale/scope
- Marketing advantage (brand loyalty, switching costs)
Structural entry barriers - Control of esesential resources (7)
- limited supplier capacity
- exclusive distribution channels
- government rationing
- location
- natural resources
- timing
- patents
Structural entry barriers - Economies of scale/scope
- declining average costs
- minimum efficient scale
- umbrella branding
- overhead spread
diversifying in adjascent markets
Market entry - Entrants advantage (3)
- Activities in related markets
- Technical innovation
- Other, e.g. new distribution channels, financial strength
Entry Strategies (4)
- Commitment
- Value Chain Reconfiguration
- Judo Economics
- Niche Market
Entry Strategies - Commitment
Credible commitment signals to incuments that retaliation may be unsuccessful
- high sunk cost investments
- exit other strategic market segments
e. g. Philips w/ CD factory in US
Entry Strategies - Value Chain Reconfiguration
Low-end disruption approach:
- enter with innovative but inferior product
- be ignored by incumbents
- product improves over time, gain share
- market leaders cannot respond to innovation in time and fail
Entry Strategies - Judo Economics
Problem: big incuments have a lot to lose in ruinous price competition -> tolerate small entrants that signal niche positioning (entrant potentially still expands capacity and pushes incumbent out)
Entry Strategies - Niche Market
Entrant focuses on niche market, incumbent can only retaliate across the board which is not feasible
Examples: NetCologne, German British Airways
Strategic Entry Barriers
- Commitment (e.g. incumbent commits to price war in case of entry)
- Limit pricing (keep price low despite monopoly to signal low cost incumbent and low demand)
- Predatory pricing (aggressively low price to trigger exit of entrant)
- Pre-emption (overinvest in capacity, pursue overly broad horizontal product differentiation)
