test 3 chapter 16 Flashcards
Force 1: Threat of New Entrants
Capital requirements
Switching costs
Distribution channels
Government policy
force 2: Threat of Substitute Products
Availability of substitute products places limits on the prices market leaders can charge
High prices induce buyers to switch to the substitute
force 3: Bargaining Power of Buyers
Buyers=manufacturers and retailers, not consumers
Buyers seek to pay the lowest possible price
Buyers have leverage over suppliers when:
They purchase in large quantities (enhances supplier dependence on buyer)
Buyer is willing and able to achieve backward integration
Porter’s Force 4: Bargaining Power of Suppliers
When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers
Leverage accrues when
Suppliers are large and few in number
Supplier’s products are critical inputs, are highly differentiated, or carry switching costs
Few substitutes exist
Porter’s Force 5: Rivalry Among Competitors
Refers to all actions taken by firms in the industry to improve their positions and gain advantage over each other Price competition Advertising battles Product positioning Differentiation
Competitive Advantage
Achieved when there is a match between a firm’s distinctive competencies and the factors critical for success within its industry
Two ways to achieve competitive advantage
Low-cost strategy
Product differentiation
Broad market strategies
Cost Leadership—low price
Product Differentiation—premium price
Narrow market strategies
Cost Focus—low price
Focused Differentiation—premium price
Cost Leadership
Based on a firm’s position as the industry’s low-cost producer
Must construct the most efficient facilities
Must obtain the largest market share so that its per unit cost is the lowest in the industry
Only works if barriers exist that prevent competitors from achieving the same low costs
Product Differentiation
Product that has an actual or perceived uniqueness in a broad market has a differentiation advantage
Extremely effective for defending market position
Extremely effective for obtaining above-average financial returns; unique products command a premium price
Cost Focus
Firm’s lower cost position enables it to offer a narrow target market and lower prices than the competition
Sustainability is the central issue for this strategy
Works if competitors define their target market more broadly
Works if competitors cannot define the segment even more narrowly
Focused Differentiation
The product not only has actual uniqueness but it also has a very narrow target market
Results from a better understanding of customer’s wants and desires
Ex.: High-end audio equipment
Global Competition and National Competitive Advantage
Global competition occurs when a firm takes a global view of competition and sets about maximizing profits worldwide
The effect is beneficial to consumers because prices generally fall as a result of global competition
While creating value for consumers, it can destroy the potential for jobs and profits
Current Issues in Competitive Advantage
Today’s business environment, market stability is undermined by:
Short product life cycles
Short product design cycles
New technologies
Globalization
Result is an escalation and acceleration of competitive forces
Current Issues in Competitive Advantage-2
Hypercompetition is a term used to describe a dynamic competitive world in which_____________________________
Competition unfolds in a series of dynamic strategic interactions in four areas: cost quality, timing and know-how, entry barriers, and deep pockets
The role of marketing is innovation and the creation of new markets
