4490 ch3

complement

A product, service, or competency that adds value to the original product offering when the two are used in tandem.

power of suppliers porter's 5 forces

This force reduces a firm's ability to obtain superior performance for two reasons: Powerful suppliers can raise the cost of production by demanding higher prices for their inputs or by reducing the quality of input or service level delivered. Powerful suppliers are a threat to firms because they reduce the industry's profit potential by capturing part of the economic value created. power of suppliers is high when Suppliers' industry more concentrated than industry it sells to. Suppliers to not depend heavily on the industry for large portion of revenues. Incumbent firms face significant switching costs when changing suppliers. Suppliers offer products that are differentiated. There are no readily available substitutes. Suppliers can credibly threaten forward integration into the industry.

industry

a group of incumbent companies that face more or less the same set of suppliers and buyers. Firms competing in the same industry offer similar products and services to meet specific customer needs.

stategic commitments

Firm actions that are costly, long-term oriented, and difficult to reverse. Strategic commitments to a specific industry can stem from large, fixed cost requirements.

the threat of substitutes

Substitutes meet same basic customer needs as industry product but in different way. Idea that products or services available from outside the given industry will come close Many software products substitutes for professional services The threat is high when: Substitute offers attractive price-performance trade-off Buyer's cost of switching to substitute is relatively low

sociocultural factors

capture a society's cultures, norms, and values. Demographic trends are also important sociocultural factors. These trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

technological factors

capture the application of knowledge to create new processes and products.

five forces model

A framework that identifies five forces that determine the profit potential of an industry that shape a firm's competitive strategy. -threat of new entry -buyer power -supplier power -threat of substitution -competitive rivalry

complementor

A company that provides a good or service that leads customers to value your firm's offering more when the two are combined.

strategic position

A firm's strategic profile based on economic value—the difference between value creation and cost (V - C).

pestel

A framework that categorizes and analyzes an important set of external factors that might impinge upon a firm. These factors can create both opportunities and threats for the firm. Political Economic Sociocultural Technological Ecological Legal

strategic group model

A framework that explains differences in firm performance within the same industry. Competitive rivalry is strongest between firms that are within the same strategic group. The external environment affects strategic groups differently. The five competitive forces affect strategic groups differently. Some strategic groups are more profitable than others.

advantages independent of size

Advantages Independent of Size Incumbent firms often possess cost and quality advantages that are independent of size. Brand loyalty Proprietary technology Preferential access to raw materials and distribution channels Favorable geographic locations Cumulative learning and experience

competition in the five forces model

Competition describes the struggle among the forces to capture as much of the value created as possible. The stronger the five forces, the lower the industry's profit potential—making the industry less attractive for competitors. The reverse is also true: the weaker the five forces, the greater the industry's profit potential—making the industry more attractive.

co opeitition

Cooperation by competitors to achieve a strategic objective

mobility barriers

Industry-specific factors that separate one strategic group from another.

exit barriers

Obstacles that determine how easily a firm can leave an industry. Are comprised of both economic and social factors. Economic factors such as fixed costs that must be paid (contracts with suppliers) Social factors such as emotional attachments to certain geographic locations (autos

power of buyers 5 forces

Pressure an industry's customers can put on producer's margins in the industry by demanding a lower price or higher product quality. Power of buyers is high when: Few buyers, and each purchases large quantities relative to single seller Industry's products are standardized or undifferentiated commodities Buyers face low or no switching costs Buyers can credibly threaten backward integration (buyer moves upstream)

stategic group

set of companies that pursue a similar strategy within a certain industry

entry barriers

are obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential. Economies of scale. Network effects. Customer switching costs. Capital requirements. Advantages independent. Government policy. Credible threat of retaliation.

capital requirements

describe the "price of the entry ticket" into a new industry. How much capital is required to compete in the industry? Which companies are willing to make the investments? What is the cost of capital and the expected return? Taken together, the threat of entry is high when capital requirements are low.

rivalry among existing competitors porter's five forces

describes intensity with which companies in same industry vie for market share and profitability. The other four forces—threat of entry, power of buyers and suppliers, threat of substitutes, all exert pressure. The stronger the forces, the stronger the competitive intensity, which in turn limits the industry's profit potential. The intensity of rivalry among existing competitors is determined largely by the following factors: Competitive industry structure. Industry growth. Strategic commitments. Exit barriers.

threat of entry porters 5 forces

describes the risk potential competitors will come into the industry. Potential new entry depresses industry profit in two major ways: Incumbent firms may lower prices to make entry appear less attractive. This lowers profit potential: (P*Q=TR) Threat of new entry may force incumbent firms to spend more to satisfy existing customers (e.g., Starbucks vis-à-vis Caribou Coffee).

government policy

entry barrier, Government Policy Frequently government policies restrict or prevent new entrants. Threat of entry is high when restrictive government policies do not exist or when industries become deregulated

credible threat of retaliation

entry barrier, Price war (industry profit may fall below cost of capital) Increased product and service innovation Advertising and sales promotions Litigation

customer switching costs

entry barrier, are incurred by moving from one supplier to another. Changing vendors may require the buyer to alter product specifications, retrain employees, and/or modify existing processes.

network effects

entry barrier, value of a product or service for an individual user increases with the number of total users

economies of scale

entry barrier- are cost advantages that accrue to firms with larger output because they can spread fixed costs over more units, employ technology more efficiently, benefit from more specialized division of labor, and demand better terms from their suppliers.

economic factors

in a firm's external environment are largely macroeconomic, affecting economy-wide phenomena. Managers need to consider how the following five macroeconomic factors can affect firm strategy: Growth rates. Levels of employment. Interest rates. Price stability (inflation and deflation). Currency exchange rates.

legal factors

include the official outcomes of political processes as manifested in laws, mandates, and court decisions—all of which can have a direct bearing on a firm's profit potential

ecological factors

involve broad environmental issues such as the natural environment, climate change, and sustainable economic growth.

industry analysis

is a method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry.

competitive industry structure

refers to elements and features common to all industries. The structure of an industry is largely captured by: The number and size of its competitors. The firms' degree of pricing power. The type of product or service (commodity or differentiated product). The height of entry barriers. During periods of positive growth: Consumer demand rises Price competition among firms decreases They focus on capturing new customers They are not focused on taking profitability away from each other During periods of negative growth: Rivalry is fierce Rivals can only gain at the expense of one another

political factors

result from the processes and actions of government bodies that can influence the decisions and behavior of firms. Firms can shape this factor through nonmarket strategies—that is, through lobbying, public relations, contributions, litigation—in ways favorable to the firm