bcor 460 exam 2
The threat of entry
describes the risk that potential competitors will enter the industry
currency exchange rate
determines how many dollars one must pay for a unit of foreign currency
firms within the same strategic group are ____ competitors
direct
growth rates, interest rates, and levels of employment would be considered _____ factors in the firms general environment
economic
Network effects
escribe the positive effect that one user of a product or service has on the value of that product or service for other users
example of a oligopolistic industry
express- delivery industry and the soft drink industry
High oil prices, governmental restrictions, and economic downturn are all examples of _____
external factors
Competitive advantage
flows to the firm that is able to create as large a gap as possible between the value the firm's product or service generates and the cost required to produce it (V - C).
What are some monopoly industries
public utilities supplying water, gas, and electricity
strategic position
relates to its ability to create value for customers (V) while containing the cost to do so (C)
Frequently government policies
restrict or prevent new entrants
The intensity with which companies in an industry jockey for market share and profitability is known as _____
rivalry
exit barriers, strategic commitments, and competitive industry structure are important factors in determining the intensity of ____
rivalry
the cost advantages that a firm obtains by increasing output, such as by spreading fixed costs over more units, are called economies of ______
scale
The PESTEL model provides a relatively straightforward way to
scan, monitor, and evaluate the important external factors and trends that might impinge upon a firm
The cultures, norms, and values of the society in which a firm competes are considered ______ factors
sociocultural
price _____ is the lack of change in price levels of goods and services
stability
a ___ group is a set of companies within a specific industry that seek to achieve competitive advantage in similar ways
Strategic
What is industry convergence
A process whereby formerly unrelated industries begin to satisfy the same customer need
A key feature of an oligopoly is that the competing firms in the industry ____, meaning the actions of any firm will influence the behaviors of other firms
Are interdependent
What are the entry barriers?
Economic of scale, networks effects, customer switching costs, capital requirements, advantages independent of size, government policy, and credible threat of retaliation
cost advantages that accrue for firms with larger output because they can spread fixed costs over more units and can employ technology more efficiently are called ?
Economies of scale
True or false sociocultural factors tend to be fixed
False
In a oligopoly, which of the following conditions exist?
High barriers to entry, differentiated products, and a few large firms
An industry analysis provides
Insight into a firms strategic position within an industry. The level of profitability that can be expected for the average firm in the industry. A rigorous way of identifying the industry profit potential
What is a monopolistically competitive industry
It has many firms, a differential product, some obstacles to entry, and the ability to raise prices for relatively unique product while retaining customers
What is an oligopolistic industry
Its consolidated with a few larges firms, differential products, high barriers to entry, and some degree of pricing power
What is the threat of substitutes
Its the idea that products or services available from outside the given industry will come close to meeting the needs of current customers
Examples of some non-market strategies
Lobbying, public relations, litigation
What are likely outcomes of a competitive rivalry based entirely on price cutting?
Most or all value is transferred to customers, firms struggle to make profits, investments from firms drop off
An example of a recent innovation in PROCESS technology is?
Nanotechnology
Entry barriers
Obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential.
What are the four main competitive industry structures
Perfect competition, monopoly , monopolistic competition, and oligopoly
What is a key feature of an oligopoly industry
The competing firms are interdependent and the actions of one firm influence the behaviors of the others
The threat of substitutes is high when
The substitutes offers an attractive price- performance trade off or the buyers cost of switching to the substitute is low
the pressure of rivalry increases when what forces increase in intensity?
The threat of substitutes, the threat of entry, and the power of buyers and suppliers
The power of buyers is high when
There are a few buyers and each buyer purchases large quantities. The industry products are standardized or undifferentiated. Buyers face low or no switching costs.
Demographic
These trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class
What are strategic commitments
They are firm actions that are costly, long-term oriented, and difficult to reverse
How can buyers effect an industry
They can demand price discounts of higher quality products
positive externality
When network effects are present, the value of the product or service increases with the number of users
What is a monopoly industry
When there is only one, often large firm supplying the market
What is co-opetition
Which is cooperation by competitors to achieve a strategic objective
According to Michael Porter, the profit potential of an industry is _____
a function of five forces related to competition
Whats a strategic group
a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage
real growth rate
adjusts for inflation.
Advantages based on brand loyalty, proprietary technology, preferential access to raw materials, and favorable geographic location are examples of _____
advantages independent of size
Examples of a demographic factor
age, sexual orientation, gender
A group of companies that deal with more for less the same set of suppliers and buyers make up ____
an industry
The most rigorous means of analyzing the profit potential within a specific industry is to conduct _____
an industry analysis
The most rigorous means of analyzing the profit potential within a specific industry is to conduct _______
an industry analysis
Economies of scale
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 a more specialized division of labor, and demand better terms from their suppliers. These factors in turn drive down the cost per unit, allowing large incumbent firms to enjoy a cost advantage over new entrants that cannot muster such scale.
Switching costs
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
external factors in the firm's task environment are ones that managers do have some influence over, such
as the composition of their strategic groups (a set of close rivals) or the structure of the industry
Deflation
describes a decrease in the overall price level.deflation is actually a serious threat to economic growth because it distorts expectations about the future.
The power of _____ is the pressure they can put on the margins of producers in the industry by demanding a lower price of higher product quality
buyers
production costs can increase when
buyers demand higher quality and more service
Sociocultural factors
capture a society's cultures, norms, and values
Technological factors
capture the application of knowledge to create new processes and products
The external forces called technological factors ____
captures the application of knowledge to create new process and products
Rivalry among existing competitors describes the intensity with which
companies within the same industry jockey for market share and profitability
ESPN starting a Spanish-Language television channel called ESPN deportes is an example of how companies react to the ______ trend that the hispanic population in the United States sees the income rising and is growing fast
demographic
Capital requirements
describe the "price of the entry ticket" into a new industry
What four factors determine the intensity among existing competitors
competitive industry structure, industry growth, strategic commitments, and exit barrier
examples of monopolistic competition
computer hardware industry
firms have a tendency to change the industry structure in their favor, for example by making industries more ______ through mergers and acquisitions
consolidated
In periods of economic expansion
consumer and business demands are rising, and competition among firms frequently decreases
Incumbent firms often possess
cost and quality advantages that are independent of size. These advantages can be based on brand loyalty, proprietary technology, preferential access to raw materials and distribution channels, favorable geographic locations, and cumulative learning and experience effects.
In the PESTEL model, political factors are those that relate to ____
government bodies
In the PESTEL model, political factors are those that relate to _____
government bodies
What are some important sources of entry barriers
government policy, economies of scale, credible threat of retaliation, network effects, and capital requirements
the weaker the five forces in the porters model, the ____ the industry profit potential
greater
The PESTEL model
groups the factors in the firms general environment into six categories. Political, economic, sociocultural, technological, ecological, and legal
Economic factors
growth rates, levels of employment, interest rates, price stability, currency exchange rates
nonmarket strategies
hat is, through lobbying, public relations, contributions, litigation, and so on
deregulation in industries
have generated significant new entries. Therefore, the threat of entry is high when restrictive government policies do not exist or when industries become deregulated.
. A credible threat of retaliation by incumbent firms
include increased product and service innovation, advertising, sales promotions, and litigation.
Legal factors
include the official outcomes of political processes as manifested in laws, mandates, regulations, 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, global warming, and sustainable economic growth
An industry
is a group of incumbent companies facing more or less the same set of suppliers and buyers. Firms competing in the same industry tend to offer similar products or services to meet specific customer needs
what is a consolidated industry
is dominated by a few firms or even just one firm, and has the potential to be highly profitable
What is a fragmented firm
it consists of many small firms and tend to generate low profitability
In addition to the static nature of the strategic group model, what is its other shortcomings
it does not help us understand why there are performance differences among firms in the same strategic group
What are compliments
its a product, service, or competency that adds value to the original product offering when the two are used in tandem
What is a perfectly competitive industry
its fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices
managers have ____ direct influence over external forces in the firms general environment than those in the firms task environment
less
A perfectly competitive industry has ___ entry barriers and ___ small firms
low, many
A perfectly competitive industry has _____ entry barriers and ___ small firms
low, many
With the threat of additional capacity coming into an industry, incumbent firms may
lower prices to make entry appear less attractive to the potential new competitors, which would in turn reduce the overall industry's profit potential, especially in industries with slow or no overall growth in demand. may force incumbent firms to spend more to satisfy their existing customers. This spending reduces an industry's profit potential, especially if firms can't raise prices
external factors in the firm's general environment are ones that managers have little direct influence over, such as
macroeconomic factors (e.g., interest or currency exchange rates)
What are factors in a firms legal environment
mandates, regulations, and laws
When managers understand the forces in the external environment, they are better able to ______
mitigate threats and leverage opportunities
The computer hardware industry is an example of ____
monopolistic competition
The positive effect that one user of a product or service has on the value of that product or service for other users is known as the _____
network effect
The overall economic growth rate is a measure
of the change in the amount of goods and services produced by a nation's economy
Game theory is used in what competitive industry structure
oligopolistic
What are the four main competitive industry structures
perfect competition, monopolistic competition, oligopoly, and monopoly
Although the five forces model is useful in understanding an industry profit potential, it provides only a _____
point in time snapshot of a moving target
In the group of external factors that form the PESTEL model, the P stands for _____ and the L stands for ____
politcal, legal
In the group of external factors that form the PESTEL model, the P stands for ____ and the L stands for _____
political, legal
When suppliers can demand higher prices for their inputs or reduce the quality of the input factor delivered, they demonstrate that they are _____
powerful
What are signs of an industry with slow growth or negative growth
price discounts, frequent new product releases with minor modifications, intense promotional campaigns, and fast retaliation by rivals are all tactics
What are examples of economic factors in the firms general environment
price stability, interest rates, and growth rates
Industry analysis
provides a more rigorous basis not only to identify an industry's profit potential—the level of profitability that can be expected for the average firm—but also to derive implications for one firm's strategic position within an industry
the threat of _____ is one of the five forces and can be exemplified by the threat that videoconferencing presents to business travel
substitutes
The five forces of porters model include the threat of entry and substitutes, rivalry among existing competitors and power of _____?
suppliers and buyers
interest rates
the amount that creditors are paid for use of their money and the amount that debtors pay for that use, adjusted for inflation
the weaker the five forces
the greater the industry's profit potential—making the industry more attractive
Price stability
the lack of change in price levels of goods and services—is rare
the stronger the five forces
the lower the industry's profit potential
What is the competitive industry structure depend on
the number and size of its competitors, the firms degree of pricing power, the type of product or service, the height of entry barriers
Political factors result from
the processes and actions of government bodies that can influence the decisions and behavior of firms
What are some ways that powerful suppliers are a threat to firms
they can capture part of the economic value created by firms, they can reduce the industry profit potential, they can force the cost of production to increase
What is non price competition
this means competing by offering unique product features or services rather than competing based on price alone
What is backward integration
this occurs when a buyer moves upstream in the industry value chain, into the sellers business
When restrictive government policies do not exist or when industries become deregulated, the ____ of entry is high
threat
Porter's Five Forces
threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors
five forces that shape competition
threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing firms.
Economic value
thus equals V minus C
inflation
too much money chasing too few goods and services
A firms strategic position relates to its ability to create ____ for customer while containing the ____ to do so
value, cost
examples of substitutes
videoconferencing versus business travel and turbo tax instead of an accountant
example of backward integration
walmart
What are the five questions to become a strategic leader
who are the players, when to enter, how to enter, what type of entry,
