Market Influences on Business: Part II_M3 Flashcards
What are the situations that pose an even stronger force upon competition?
- The market is not growing fast.
- There are several equal-sized firms in the market.
- Customers do not have strong brand preferences.
- The costs of exiting the market exceed the costs of continuing to operate.
- Some firms profit from making certain moves to increase market share.
- The various firms in the market use different types of strategic plans
What does it mean for a firm to have a competitive advantage?
- Cost leadership advantage may best be obtained by a firm when it builds market share or matches the price of its rivals.
- If the total costs of a firm are less than those of close rivals, then the firm has a competitive market advantage.
- The two major forms of competitive advantage are differentiation and cost leadership.
- High barriers to entry make it more difficult for new firms to enter which helps keep profits higher for those firms already in the industry.
- Profitability increases when there are minimal alliances with suppliers.
- Profits will increase when buyers have higher switching costs
- If rival firms are willing to spend a lot on advertising, other firms will suffer as it tries to keep up with its competitors.
What is SWOT Analysis?
Evaluation of internal and external factors contributing to an organization’s success.
- Strengths and Weaknesses focus on internal factors
- Opportunities and Threats relate to external factors.
What are the Strengths and Weaknesses in the SWOT analysis?
Internal Factors of the SWOT Analysis
- Innovation of product lines
- Competence of management
- Core competentcies (outsourcing skills that are better than those of the competitors)
- Influence of high-level managers
- capital improvements
- leadership in research and developement
- Cohesiveness of the values of the organization
- Marketing effectiveness
- Effectiveness of communication
- Clarity of the strategic mission
What are the Oppurtunities and Threats in the SWOT analysis?
External Factors in the SWOT Analysis
External Factors affecting OVERALL INDUSTRY
- The economy
- Regulations and Laws
- Demographics of the Population
- Technological advances and existing technology
- Social Values
- Political Issues
External Factors affecting COMPETITIVE ENVIRONMENT
- Barriers to market entry
- Market competiveness
- Existence of substitutes
- Bargaining power of the customers
- Bargaining power of the suppliers
What is Balance Score Card
A review of the balanced scorecard, which summarizes
measures of achievement of critical success factors, does not represent the objective review of internal and external factors that may impact achievement of strategy
What is the best cost provider strategy?
- When generic products are not acceptable to buyers, yet they still remain price sensitive to the value they are receiving for their money.
- The best cost strategy is a combination of the benefits of the cost leadership and differentiation strategies.
- It strives to have the firm evaluate and change its value chain such that it can achieve the lowest cost among its closest competitors while matching them on the features desired by consumers.
What are the 2 overall sales strategies?
Cost Leadership: Organization seeks to capture market share through maintaining the lowest cost.
- Organizations that sell economically inferior goods (necessities such as cotton swabs, light bulbs, etc.) are more likely to position themselves as cost leaders.
Differentiation: Organization seeks to capture market share by demonstrating product value.
- Organizations that sell economically superior goods (luxuries such as cruise packages, fine china, jewelry, etc.) who will likely seek to differentiate the value of their product as part of their strategy.
When do strategies fail?
Cost Leadership Strategy Fail
If firms overlook that few customers care about priced lower than others, and care more about brand loyalty.
Differentiation Strategy Fails
If a firm pays a higher cost for the differentiation than it is able to recoup in the market, the firm will lose competitive advantage.
When do cost leadership strategies succeed?
- New entry firms are able to influence buyers to switch to their product by cutting the price.
- Buyers have large amounts of bargaining power in the market.
- Heavy price competition exists in the market.
What is Micheal Porter’s 5 forces that affect the competitive environment?
External Forces that effect the competitive environment directly:
1. Barriers to market entry.
2. Market Competitiveness.
3. Existence of substitute products.
4. Bargaining power of customers.
5. Bargaining Power of suppliers.
What are the barriers to entry?
1 of 5 Micheal Porter Forces
A barrier to entry effectively prevents firms from entering the market to compete against existing firms.
- Large capital (money) requirements ex.
- Patents are an example of barriers to entry. Patents prevent other rival firms (without patents) from entering the market.
- Barriers to entry are “hoops” or other obstacles that a firm must combat when it attempts to enter a new market.
What is market competitiveness?
2 of 5 Porter’s 5 forces
- The most significant of the five forces facing a firm.
- Firms need to be able to anticipate the strategic moves of rival firms.
- If a firm is in competition with other firms who are able to respond to changes in various components affecting business, the firm faces a strong competitive force of intensity of competition (market competitiveness).
What are substitute productts within the Porter’s 5 Forces?
3 of the 5 Micheal Porter Forces
A firm faces heavy competition from substitute products when
similar products exist in the marketplace, and consumers are easily able to switch from one product to another.
What are the factors that affects the bargaining power of the customer?
4 of the 5 Micheal Porter Forces
Bargaining power of the customers relates to the ability of the
customer to directly impact the profitability of the firm by increasing the negotiating power of the customer.
EXAMPLES:
- Customers make up a large volume of a firm’s business.
- There is much information available to customers.
- The buyers/customers have low switching costs.
- There are a high number of alternate suppliers.
