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Strategic Management > quiz one article competitive forces > Flashcards

quiz one article competitive forces Flashcards

1
Q

The five ____ govern the profit structure of an industry by determining how the economic value it creates is apportioned

A

forces

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2
Q

The five forces govern the ___ structure of an industry by determining how the economic value it creates is apportioned

A

profit

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3
Q

The five forces govern the profit ____ of an industry by determining how the economic value it creates is apportioned

A

structure

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4
Q

The five forces govern the profit structure of an ____ by determining how the economic value it creates is apportioned

A

industry

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5
Q

The five forces govern the profit structure of an industry by determining how the ____ value it creates is apportioned

A

economic

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6
Q

The five forces govern the profit structure of an industry by determining how the economic value it ____ is apportioned

A

creates

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7
Q

The five forces govern the profit structure of an industry by determining how the economic value it creates is ____

A

apportioned

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8
Q

the economic value of a industry may be drained away through the rivalry among what?

A

existing competitors

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9
Q

the economic value of a industry may be bargained away through the power of what ?(2)

A
  1. suppliers 2. customers
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10
Q

the economic value of a industry may be constrained by the threat of what (2)

A
  1. new entrants 2. substitutes
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11
Q

____ can be view as building defenses against the competitive forces or as finding a position in an industry where the forces are weaker

A

strategy

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12
Q

strategy can be view as building ____ against the competitive forces or as finding a position in an industry where the forces are weaker

A

defenses

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13
Q

strategy can be view as building defenses against the ____ forces or as finding a position in an industry where the forces are weaker

A

competitive

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14
Q

strategy can be view as building defenses against the competitive _____ or as finding a position in an industry where the forces are weaker

A

forces

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15
Q

strategy can be view as building defenses against the competitive forces or as ____ a position in an industry where the forces are weaker

A

finding

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16
Q

strategy can be view as building defenses against the competitive forces or as finding a ____ in an industry where the forces are weaker

A

position

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17
Q

strategy can be view as building defenses against the competitive forces or as finding a position in an ____ where the forces are weaker

A

industry

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18
Q

strategy can be view as building defenses against the competitive forces or as finding a position in an industry where the _____ are weaker

A

forces

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19
Q

strategy can be view as building defenses against the competitive forces or as finding a position in an industry where the forces are ____

A

weaker

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20
Q

_____ in the strength of the competitive forces signals changes in the competitive landscape critical to ongoing strategy formulation

A

Changes

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21
Q

Changes in the ____ of the competitive forces signals changes in the competitive landscape critical to ongoing strategy formulation

A

strength

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22
Q

Changes in the strength of the _____ forces signals changes in the competitive landscape critical to ongoing strategy formulation

A

competitive

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23
Q

Changes in the strength of the competitive forces _____changes in the competitive landscape critical to ongoing strategy formulation

A

signals

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24
Q

Changes in the strength of the competitive forces signals _____ in the competitive landscape critical to ongoing strategy formulation

A

changes

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25
Q

Changes in the strength of the competitive forces signals changes in the _____ landscape critical to ongoing strategy formulation

A

competitive

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26
Q

Changes in the strength of the competitive forces signals changes in the competitive _____critical to ongoing strategy formulation

A

landscape

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27
Q

Changes in the strength of the competitive forces signals changes in the competitive landscape critical to ongoing _____formulation

A

strategy

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28
Q

Changes in the strength of the competitive forces signals changes in the competitive landscape critical to ongoing strategy _____

A

formulation

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29
Q

How do the five competitive forces govern the profit structure of an industry ?

A

by determining how the economic value it creates is apportioned

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30
Q

what are 2 strategies for dealing with competitive forces?

A
  1. building defenses against them 2. finding a position in an industry where the forces are weaker
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31
Q

What do changes in the strength of the competitive forces signal? why is this important?

A

changes in the competitive landscape It is necessary to adjust for these changes in ongoing strategy formulation

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32
Q

You must respond strategically to competition in order to sustain what?

A

long term profitability

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33
Q

In order to be competitive, you need to look beyond your direct what?

A

competitors

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34
Q

What are the 5 competitive forces that can hurt your future profits?

A
  1. direct competitiors 2. customers 3. suppliers 4. new entrants 5. substitutes
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35
Q

how can customers hurt your future profits?

A

they can force down prices by playing you and your rivals against each other

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36
Q

how can suppliers hurt your future profits?

A

they can constrain your profits if they charge higher prices

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37
Q

how can new entrants hurt your future profits?

A

they can ratchet up the investment you need to make to stay in the game

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38
Q

how can substitutes hurt your future profits?

A

they can lure customers away

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39
Q

By analyzing all 5 competitive forces, you gain a complete picture of something being influenced…what is it?

A

profitability in your industry

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40
Q

What are 3 benefits of analyzing the 5 competitive forces?

A
  1. you can spot game changing trends early so you can exploit them 2. you can spot ways to work around constraints on profitability 3. You may be able to reshape the forces in your favor
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41
Q

You can develop a strategy to enhance your company’s long term profits by understanding what about the 5 competitive forces?

A

how they influence profitability in your industry

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42
Q

What are the 3 strategies Porter suggests to deal with competitive forces and enhance your companies long term profits?

A
  1. position your company where the forces are the weakest. 2. Exploit changes in the forces 3. reshape the forces in your favor
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43
Q

What is an example of the strategy of positioning your company where the forces are the weakest.

A

ex. heavy truck industry, many buyers operate large fleets and are motivated to drive down truck prices. trucks are built to regulated standards and have similiar features so price competition is stiff, unions have great supplier power, and buyers can use substitutes such as cargo delivery by rail. Paccar focused one customer group where competitve forces are weakest. individual drivers who own their trucks and contract directly with suppliers. they have limited power as buyers and are less price sensitive because of emotional ties and economic dependence on their own trucks. they developed many features for thier trucks to personalize for the buyer built to order and customers pay a premium

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44
Q

What is an example of the strategy of exploiting changes in forces?

A

with the internet and digital distribution of music, unauthorized downloading created an great substitute for record companies services. record companies tried to develop technical platforms to distribute digitally but they didnt want to sell thier music on platform of a rival. Apple saw this opportunity and launched Itunes music store supporting its Ipod music player. major recording companies went from 6 to 4 because of it.

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45
Q

What does it mean to use a strategy of reshaping the forces in your favor?

A

use tactics designed to specifically to reduce the share of profits leaking to other players

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46
Q

What is an example of the strategy of reshaping the supplier power force in your favor?

A

To neutralize supplier power, standardize specifications for parts so your company can switch more easily among vendors

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47
Q

What is an example of the strategy of reshaping the customer power force in your favor?

A

to counter customer power, expand your services so it’s harder for customers to leave you for a rival

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48
Q

What is an example of the strategy of reshaping the existing rival power force in your favor?

A

to temper price wars by established rivals, invest more heavily in products that differ significantly from competitors offerings.

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49
Q

What is an example of the strategy of reshaping the new entrants force in your favor?

A

to scare off new entrants, elevate the fixed costs of competing….ex. escalate your R&D expenditures

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50
Q

What is an example of the strategy of reshaping the substitutes force in your favor?

A

to limit the threats of substitutes, offer better value through wider product accessibilty. ex. soft drink producers introduced vending machines and convenience store channels improving the availabiliity of soft drinks relative to other beverages

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51
Q

what are the 4 competitive forces besides establishd industry rivals?

A
  1. customers 2. suppliers 3. potential entrants 4. substitute products
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52
Q

If the competitive forces are intense, almost no company does what?

A

earn an attractive return on investment

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53
Q

If forces are benign, many companies are what?

A

profitable

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54
Q

industry ____ drives competition and profitability

A

structure

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55
Q

industry structure, manifested in the competitive forces, sets industry profitability in the _____ and _____ run

A

medium long

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56
Q

The structure of your ______ should be as much a competitive concern as your company’s own position

A

industry

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57
Q

understanding industry structure is essential to effective strategic _____

A

positioning

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58
Q

What two actions are crucial to strategy concerning the competitive forces.

A
  1. defending against competitive forces 2. shaping competitive forces in a company’s favor
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59
Q

The ______ of the five forces differs by industry

A

configuration

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60
Q

the ____ competitive force or forces determine the profitability of an industry and become the most important to strategy formulation

A

strongest

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61
Q

the strongest competitive force or forces determine the _____ of an industry and become the most important to strategy formulation

A

profitability

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62
Q

the strongest competitive force or forces determine the profitability of an _____and become the most important to strategy formulation

A

industry

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63
Q

the strongest competitive force or forces determine the profitability of an industry and become the most important to strategy _____

A

formulation

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64
Q

T/F the most salient competitive force is always obvious

A

F

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65
Q

industry ______ grows out of a set of economic and technical characteristics that determine the strength of each competitive force

A

structure

66
Q

industry structure grows out of a set of_____ and technical characteristics that determine the strength of each competitive force

A

economic

67
Q

industry structure grows out of a set of economic and _____ characteristics that determine the strength of each competitive force

A

technical

68
Q

industry structure grows out of a set of economic and technical characteristics that determine the ____ of each competitive force

A

strength

69
Q

industry structure grows out of a set of economic and technical characteristics that determine the strength of each _____ force

A

competitive

70
Q

New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on what 3 things? this is especially true for what kind of new entrants?

A
  1. prices 2. costs 3. the rate of investment necessary to compete ones that are diversifying from other markets
71
Q

New entrants that are diversifying from other markets can leverage existing _____ and ____ ____ to shake up the competition

A

capabilities cash flows

72
Q

the threat of entry puts a cap on what?

A

the profit potential of an industry

73
Q

when the threat of entry is high, incumbents must do one of what 2 things to deter new competitors?

A
  1. hold down their prices 2. boost investment
74
Q

the threat of entry in an industry depends on what 2 things?

A
  1. the height of the barriers that are present 2. the reaction entrants can expect from incumbents.
75
Q

Which holds down profitability ….the threat of entry or whether the entry actually occurs?

A

the threat

76
Q

What are the 7 major sources to barriers to entry?

A
  1. supply side economies of scale 2. demand side benefits of scale 3. customer switching costs 4. capital requirements 5. incumbency advantages independent of size-(cost,quality) 6. unequal access to distribution channels 7. restrictive government policy
77
Q

what is an entry barrier?

A

an advantage that incumbents have relative to new entrants

78
Q

an advantage that incumbents have relative to new entrants is called what?

A

an entry barrier

79
Q

what is supply side economies of scale?

A

economies that arise when firms that produce at larger volumes enjoy lower costs per unit

80
Q

economies that arise when firms that produce at larger volumes enjoy lower costs per unit are called?

A

supply side economies of scale

81
Q

what are 3 ways companies obtain supply side economies of scale?

A
  1. they can spread more fixed cost over more units 2. they employ more efficient technology 3. they command better terms from suppliers
82
Q

supply side scale economies deter entry by forcing the aspiring entrant to do one of what 2 things?

A
  1. come into the industry on a large scale which requires dislodging entrenched competitors 2. accept a cost disadvantage
83
Q

T/F Scale economies can be found in virtually every activitiy in the value chain;which one is more important varies by industry

A

T

84
Q

what is demand side benefits of scale?

A

come about in an industry where a buyer’s willingness to pay for a company’s product increases with the number of other buyers who also patronize the company (also called network effects)

85
Q

come about in an industry where a buyer’s willingness to pay for a company’s product increases with the number of other buyers who also patronize the company (also called network effects)

A

demand side benefits of scale

86
Q

demand side benefits of scale discourage entry in what 2 ways?

A
  1. it limits the willingness of customers to buy from a newcomer 2. it reduces the price the newcomer can command until it builds up a large base of customers
87
Q

what are customer switching costs?

A

the fixed costs that buyers face when they change suppliers

88
Q

the fixed costs that buyers face when they change suppliers are what kind of costs?

A

customer switching

89
Q

switching costs may occur because a buyer who switches vendors may have to do certain things. what are 3 examples?

A
  1. alter product specificiations 2. retrain employees to use new product 3. modify processes or information systems
90
Q

T/F the larger the switching costs, the easier it will be for an entrant to gain customers

A

F

91
Q

how do capital requirements deter new entrants?

A

because they would need to invest large financial resources in order to compete. ex. for fixed faciliites, customer credit, inventory, startup losses

92
Q

when is the barrier of capital requirements particularity great?

A

if the capital is required for unrecoverable expenditures which make them harder to finance ex. R&D, upfront advertising

93
Q

why are capital requirements not always a barrier to entry by themselves?

A

if industry returns are attractive and are expected to remain so and if capital markets are efficient, then investors will provide entrants with the funds they need

94
Q

what are examples of the barrier “Incumbency advantages independent of size”?

A

proprietary technology access to the best raw material sources favorable geographic locations established brand cumulative experience allowing them to learn how to produce more efficiently

95
Q

sometimes access to distribution is so high a barrier that new entrants must do one of what two things?

A
  1. bypass distribution channels altoghether 2. create their own distribution channels
96
Q

what is an example of how new airline entrants have avoided distribution channels of travel agents?

A

they encourage passengers to book thier own flights on the internet

97
Q

how does goverment hinder new entry?

A

it can have licensing requirements or restrictions on foreign investment

98
Q

how does government help new entry?

A

subsidies or funding research that is available to all

99
Q

how does governnment hinder entry through heightening other entry barriers?

A

patents that protect proprietary technology from imitation or environmental or safety regulations that raise scale economies for newcomers

100
Q

When assessing the entry barriers for potential entrants, a strategist will want to keep in mind what two things?

A
  1. the capabilities of the potential entrants 2. the creative ways newcomers might find to circumvent apparent barriers
101
Q

T/F How potential entrants believe incumbents will react will influence their decision to enter or stay out of an industry

A

T

102
Q

Newcomers are likely to fear expected retaliation if what 4 things are true?

A
  1. incumbents have previously responded vigorously to new entrants 2. incumbents posses the resources to fight back like excess cash and unused borrowing power, available productive capability, clout with distributors and customers 3. incumbents will most likely cut prices because committed to retaining market share or because has high fixed costs so they have motivation to drop pices to fill excess capacity 4. industry growth is slow so newcomers can gain volume only by taking it from incumbents
103
Q

the challenge for newcomers with regards to entry barriers is what?

A

To surmount the barriers without nullifying through heavy investment the profitability from participating in the industry

104
Q

How do powerful suppliers capture more value for themselves? (3)

A
  1. charge higher prices 2. limit quality or services 3. shift costs to industry participants
105
Q

How do powerful suppliers squeeze profitability out of an industry?

A

by charging higher prices to participants who cant pass on cost increases in their own prices

106
Q

A supplier group is powerful if any of what 6 things are true?

A
  1. It is more concentrated than the industry it sells to 2. the supplier group does not depend heavily on the industry for its revenues. if they account for large portion of profit will want to protect industry with reasonable pricing and helping with stuff like R&D 3. industry participants face switching costs in changing suppliers ex. they have invested heavily in your equipment or learning how to operate it, put their factory by yours 4. suppliers offer products that are differentiated. ex. pharma companies with patented drugs 5. there is no substitute for what supplier group provides. ex. pilots can’t be replaced with technology 6. supplier group can credibly threaten to integrate forward into the industry
107
Q

What are 3 things powerful customers do to capture more value from the industry?

A
  1. forcing down prices 2. demanding better quality or more service (raising costs) 3. play industry participants off one another
108
Q

when are buyers powerful?

A

if they have negotiating leverage relative to industry participants especially if they are price sensitive

109
Q

A customer group has negotiating leverage if one of what 4 things is true?

A
  1. there are few buyers, or each one purchases in volumes that are large relative to the size of a single vendor. large volume buyers very powerful when industry has large fixed costs and low marginal costs which turn up the pressure on rivals to keep capacity filled through discounting 2. the industry’s products are standardized or undifferentiatied. can play one vendor against the other 3. buyers face few switching costs in changing vendors 4. buyers can credibly threaten to integrate backwards and produce product themselves . ex.soda company threatening to make their own packaging
110
Q

A buyer group is sensitive if one of what 4 things is true

A
  1. the product it purchases represents a significant fraction of its cost structure or procurement budget. they will shop around and bargain hard. ex.like home mortgages. 2. buyer group has low profits, is strapped for cash , or is under pressure to trim its costs 3. the quality of the buyers products is little affected by the industry’s product. 4. the industry’s product has little effect on the buyers other costs. if the product can pay for itself by improving performance or reducing labor or other costs, buyers more interested in quality than price
111
Q

Consumer tend to be more price sensitive in what 3 cases?

A
  1. the products are undifferentiatied 2. products expensive relative to their incomes 3. if product is the sort where the performance has limited consequences
112
Q

what are intermediate customers?

A

those who purchase the product but are not the end user (ex. assemblers, distribution channels)

113
Q

Intermediate customers are similar to regular customers except for one major addition regarding bargianing power. what is it?

A

they gain significant bargaining power when they can influence the purchasing decisions of customers downstream ex. jewelry retailers and consumer electronic retailers

114
Q

how can the threat of a substitute be downstream or indirect?

A

when a substitute replaces a buyer industry’s product. ex. sell software to travel agents but the buyer (travel agency) product (travel agents) have been substituted by the internet.

115
Q

with substitutes always being present, how are they easy to overlook?

A

because they may appear to be very different from the industry’s product. ex. for gift necktie and powertool can be substitutes

116
Q

T/F It is a substitute to do without, buy used, or do it yourself

A

T

117
Q

substitute products limit an industries profit potential. how do they do this?

A

by placing a ceiling on prices

118
Q

how does an industry avoid suffering in profitability and growth potential in regards to substitutes?

A

they have to distance themselves from substitutes through product performance, marketing, or other means

119
Q

T/F Substitutes only limit the profits in normal times. they do not limit profits an industry can reap in good times.

A

F

120
Q

The threat of a substitute is high if one of what 2 things is true?

A
  1. the substitute offers an attractive price-performance trade-off to the industry’s product. ex. netflix instead of video rental store. 2. the buyers cost of switching to substitute is low. ex. switching from brand name to generic drug
121
Q

T/F Strategists should be alert to changes in other industries that may make them attractive substitues when they were not before. ex. now plastic can be used instead of steel in some auto components

A

T

122
Q

T/F High rivalry doesn’t limit the profitability of an industry

A

F

123
Q

The degree to which rivalry drives down an industry’s profit potential depends on what 2 things?

A
  1. the intensity with which companies compete 2. the basis on which they compete (price, quality, etc)
124
Q

The intensity of rivalry is greatest if one of what 4 things is true?

A
  1. competitors are numerous or are roughly equal in size and power 2. Industry growth is slow 3. exit barriers are high 4. rivals are highly committed to the business and have aspiration for leadership, especially if have goals that go beyond economic performance in the industry
125
Q

when there is not an industry leader, what is the result for the industry’s health?

A

the practices that are desirable for the industry go unenforced

126
Q

why does slow growth in an industry lead to fierce competition?

A

because there are fights for market share

127
Q

why do high exit barriers lead to fierce competition?

A

they keep the company in the market even with low or negative returns.

128
Q

what are examples of exit barriers (2)

A
  1. highly specialized assets 2. managements devotion to a particular business
129
Q

how does the profitability of healthy competitors get hurt by high exit barriers?

A

because the excess capacity of the sick companies remains in use and they drag down the healthy ones

130
Q

rivalry is especially destructive to profitability if it gravitates solely to competing on what?

A

price

131
Q

price competition transfers profits directly from an industry to who?

A

its customers

132
Q

sustained price competition trains customers to pay less attention to what?

A

product features and service

133
Q

Price competition is most liable to occur if one of what 4 things are true?

A
  1. products of rivals are nearly identical and there are few switching costs for buyers 2. fixed costs are high and marginal costs are low 3. capacity must be expanded in large increments to be efficient 4. the product is perishable
134
Q

products being nearly identical and having few switching costs for buyers encourages competitors to do what?

A

cut prices to win new customers

135
Q

what do high fixed costs and low marginal costs pressure competitors to do to their prices?

A

cut them below average costs and even close to marginal costs so they can steal some customers while still making some contribution to covering fixed costs

136
Q

Why is competing on dimensions other than price less likely to erode profitability?

A

because it improves customer value and can support higher prices

137
Q

What can competing on dimension other than price do besides improve customer value and support higher prices? (2)

A
  1. it improves value relative to substitutes 2. it can raise the barriers facing new entrants
138
Q

which type of rivalry is more likely to undermine industry profitability? price or nonprice

A

price

139
Q

as important as the dimension on rivalry is whether rivals compete on the ____ dimension

A

same

140
Q

when all or many competitors aim to meet the same needs or compete on the same attributes, what is the result regarding competition?

A

it becomes a zero sum game

141
Q

T/F Zero sum compettion drives down profitability

A

T

142
Q

price competition can avoid becoming a zero sum game if companies do what?

A

take care to segment their markets, targeting their low price offering to different customers

143
Q

T/F Rivalry can be positive sum or increase the average profitability of an industry

A

T

144
Q

when can rivalry be a positive sum game?

A

when each competitor aims to serve the needs of different customer segments

145
Q

the opportunity for positive sum competition will be greater in industries with what type of customer groups?

A

diverse

146
Q

Why does industry structure, as manifested in the strength of the 5 competitive forces, determine the industry’s long run profit potential?

A

because the structure determines how the economic value created by the industry is divided (companies, substitues, suppliers, customers)

147
Q

It is a mistake to confuse the underlying industry structure with certain visible attributes of an industry. what are some examples of these? (4)

A
  1. industry growth rate 2. technology and innovation 3. government 4. complementary products and services
148
Q

Why is a fast growing industry not always attractive?

A

because it can put suppliers in a powerful position, it can draw in entrants if there are low entry barriers, it wont guarantee profitability if customers are powerful or substitutes are attractive

149
Q

what is an example of how advanced technology or innovations are not by themselves enough to make an industry structurally attractive or not?

A

for instance you have mundane, low tech industries with price insensitive buyers, high switching costs, and high entry barriers that do better than sexy industries that attract competitors

150
Q

Is government inherently good or bad for industry profitability?

A

neither

151
Q

What is the best way to understand the influence of government on competition?

A

analyze how specific government policies affect the five competitive forces

152
Q

when do complements arise?

A

when the customer benefit of two products combined is greater than the sum of each products value in isolation

153
Q

Complements can be important when they affect what?

A

the overall demand for an industry’s product

154
Q

T/F The presence of strong complements is good for industry profitability

A

F not necessarily. can be bad or good

155
Q

how do complements affect profitability?

A

through the way they influence the five forces

156
Q

does the presence of complements raise or lower entry barriers?

A

can do either

157
Q

does the presence of complements make the threat of substitution greater or lesser

A

can do either. not enough feuling stations for electric cars but Itunes makes digital substitution for music easier

158
Q

even though industry structure is relatively stable you have to keep an eye on it. why?

A

because it is constantly undergoing modest adjustment and occoasionally can change abruptly

159
Q

the 5 competitive forces provide a framework for doing what in regards to shifts in structure?

A

identifying the most important industry developments and anticipating their impact on industry attractiveness

160
Q

what is an appropriate time horizon for most industries? What is the profitability that we are looking at in this time period?

A

3-5 years the average profitability

161
Q

The strenth of the competitive forces affects prices, costs, and the investment required to compete;thus the forces are directly tied to what 2 items of industry particupants?

A

B/S I/S

Strategic Management (24 decks)

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