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Business Test 1 > Unit 14.1 > Flashcards

Unit 14.1 Flashcards

1
Q

External Environment layers

A

((((Firm)Market)Industry)General Environment)

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2
Q

Competitors also referred to as…

A

strategic group

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3
Q

Industry competitors include…

A

all competitors, not just direct competitors

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4
Q

General Environment analysis acronym

A

PESTEL

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5
Q

PESTEL

A 
Political
Economic
Social
Technological
Ecological
Legal
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6
Q

PESTEL Analysis Objectives

A
  • Identify external factors
  • Discern trends and predict outcomes
  • Extract Opportunities and threats
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7
Q

Ecological

A

Businesses need to understand how they impact the environment operationally

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8
Q

Legal/Ethical

A

Laws, mandates, regulations and court decisions

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9
Q

SCP Model

A

Structure, Conduct, Performance

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10
Q

Structure

A

Industry Structure

  • # of competitors
  • Value chain and extent of vertical integration
  • Economics of supply and demand
  • Cost of entry/exit
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11
Q

Conduct

A
  • Branding, product differentiation and price setting
  • Capacity
  • Innovation
  • Operating Efficiencies
  • Collusion
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12
Q

Performance

A
  • Profits
  • Value creation
  • Technological progress
  • Shareholder returns
  • Industry performance
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13
Q

Perfect Competition

A
  • Many small firms

- Low entry barriers

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14
Q

Monopoly

A
  • One firm
  • Pricing Power
  • Very high entry barriers
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15
Q

Monopolistic Competition

A
  • Many firms
  • Some pricing Power
  • Differentiated product
  • Medium Entry barriers
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16
Q

Oligopoly

A
  • Few large firms
  • Some pricing power
  • Differentiated Product
  • High entry barriers
17
Q

Attractiveness

A

Total industry profitability

18
Q

The stronger the force…

A

the greater the negative impact is on firm profits

19
Q

Porter 5 Forces

A

1) Bargaining Power of Suppliers
2) Bargaining power of buyers
3) Competitive Rivalry
4) Threat of new entrants
5) Threat of substitute products or services

20
Q

Concentration Ratio

A

the ratio of the combined market shares of a given number of firms to the whole market size
- Used to assess the extent to which a given market is oligopolistic

21
Q

Concentration Ratio impacts…

A

Competitive Rivalry
Buyer Bargaining Power
Supplier Bargaining Power

22
Q

Switching Costs

A

the costs that a consumer incurs as a result of changing brands, suppliers or products

23
Q

Switching Costs impact…

A

all five forces

24
Q

Forward Integration

A

Business strategy that involves a form of vertical integration whereby business activites are expanded to include control of the direct distribution or supply of a company’s products.
- Company moves down the supply chain

25
Q

Backward Integration

A

Company moves UP the supply chain by controlling supply.

26
Q

Forward/Backward Integration impacts…

A

Buyer bargaining power

Supplier bargaining power

27
Q

Bargaining Power of Suppliers is HIGH when:

A
  • Concentrated supplier industry
  • Suppliers not dependent on industry for majority of revenue
  • Industry competitors firms face supplier switching costs
  • Suppliers hold scarce resources
  • Suppliers offer differentiated products
  • There are no or few supplier substitutdes
  • Suppliers can forward-integrate into the industry
28
Q

Bargaining Power of Buyers is HIGH when:

A
  • There are a few buyers and each buy purchases large quantities
  • The industry’s products are standardized or undifferentiated commodities
  • The buyer has many substitude options
  • Buyers face low or no switching costs
  • Buyers are price-sensitive
  • Buyers can backwardly integrate into the industry
29
Q

Threat of Substitutes is HIGH when:

A
  • The substitute offers and attractive price-performance trade-off
  • The buyer’s cost of switching to the substitute is low
  • Buyer are not loyal to any of the industry competitors
30
Q

Threat of Substitutes is HIGH when:

A
  • The substitute offers and attractive price-performance trade-off
  • The buyer’s cost of switching to the substitute is low
  • Buyer are not loyal to any of the industry competitors
31
Q

The primary impact of a substitutes is the..

A

limits placed on the pricing flexible of the industry competitors

32
Q

Threat of New Entrants is HIGH when…

A

there are no or low barriers to entry and the Industry Average Profitability is high

33
Q

Barriers to entry include:

A
  • Economies of scale
  • Network effects
  • Customer switching costs
  • Capital requirements
  • Advantages independent of size
  • Government policy
  • Credible threat of retaliation
34
Q

Competitive Rivalry

A
  • Other 4 forces put pressure on this rivalry

- The stronger the forces, the higher the intensity

35
Q

Less rivalry when:

A
  • High buyer switching costs
  • Low exit barriers
  • Economies of scale not competitive a factor
  • More industry concentration
  • More product differentiation
36
Q

The more dissimilar the products of firms are…

A

the more attractive the industry (heterogenous goods)

37
Q

Complement

A

a product, service, or competency that addes value to the original product offering when the two are used in tandem

38
Q

Complements tend to result in…

A

higher margins and profits for industry competitors

39
Q

Ways companies can mitigate structural impediment to firm profitability:

A
  • Increase product differentiation
  • Diversify product lines
  • Introduce or strengthen switching costs
  • Continually innovate to increase product value
  • Alter bargaining relationships between the industry competitors and buyers and suppliers
  • Build barriers to entry to keep new competition out
  • Develop complements or build strategic partnerships with complement providers

Business Test 1 (25 decks)

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