Mgt Ch. 3

What are the 4 main competitive industry structures?

1. Perfect competition 2. Monopolistic competition 3. Oligopoly 4. Monopoly

What are the 5 forces of competition in Porter's model?

1. Threat of entry 2. Power of suppliers 3. Power of buyers 4. Threat of Substitutes 5. Rivalry among existing competitors

Complementor

A company that provides a good or service that leads customers to value your firm's offering more when the two are combined -Example: Google compliments Samsung

A 6th Force: Role of Complements

A complement is a product, service, or competency that adds value to the original product offering when the two are used in tandem. -Increase the demand for the primary product, enhancing profit potential for the industry and firm

PESTEL Framework

A framework that categorizes and analyzes an important set of external factors (6 of them) that might impinge upon the firm. These factors can create both opportunities and threats for the firm. -Provides a relatively straightforward way to scan, monitor, and evaluate the important external factors and trends that might impinge upon a firm. -Political, Economic, Sociocultural, Technological, Ecological, and Legal

Industry Convergence

A process whereby formerly unrelated industries begin to satisfy the same customer need -Brought on by TECHNOLOGICAL ADVANCES ex.) can now view movies on tv or on mobile device

Power of Suppliers

Bargaining power of suppliers captures pressures that industry suppliers can exert on an industry's profit potential -Suppliers can raise cost of production by demanding higher prices for their inputs or they can reduce the quality of the input factor or service level delivered.

Co-opetition

Cooperation by competitors to achieve a strategic objective -Can create a positive sum game, resulting in a larger pie for everyone involved -Involve using complements -Example: Same as above with Google/Samsung

Entry Barriers

Obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential -Incumbent firms can benefit from several important sources of entry barriers: -Economies of scale, network effects, customer switching costs, capital requirements, advantages independent of size, government policy, and credible threat of retaliation.

Power of Buyers

Power of buyers concerns the pressure an industry's customers can put on the producer's margins in the industry by demanding a lower price or higher product quality. Power of buyers is high when: (1) there are few buyers that purchase large quantities (2) the industry is standardized and not unique (3) buyers face low or no switching costs (4) buyers can credibly threaten to backwardly integrate into the industry

Strategic Group Model

Strategic Group Model= Explains differences in firm performance within the same industry -Clusters different firms into groups based on key strategic dimensions ex.) RandD, technology, product differentiation, pricing, marketing segments, etc. -firm performance is determined not only by industry in which it belongs, but also by its strategic group membership

Threat of Entry

The risk that potential competitors will enter an industry -New entry depresses industry profit potential in two major ways: 1. Firms have to lower prices to drive away potential competitors 2. Firms may have to spend more to satisfy their existing customers.

Strategic Group

The set of companies that pursue a similar strategy within a specific industry -When you decide in the competitive industry that you will choose a strategic group. In the airline industry, we're gonna compete with Jetblue and southwest, not the other big airlines. -Differ from one another along important dimensions such as R and D, technology, product differentiation, etc.

Monopolistic Competition

This industry has many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers. -Key to understanding this industry structure is that the firms now offer products or services with unique features Monopolistic competition= characterized by.. 1.) Many firms 2.) a differentiated product (big difference) 3.) medium entry barriers 4.) some pricing power (depends on degree of differentiation) (niches are established)

Oligopoly

This industry is consolidated with a few large firms, differentiated products, higher barriers to entry, and some degree of pricing power. -Degree of pricing power depends on (like monopolistic competition) on the degree of product differentiation -Key feature of an oligopoly is that competing firms are interdependent Oligopoly= characterized by.. 1. few (large) firms 2. Differentiated products 3. High entry barriers 4. Some pricing power 5. Firms are INTERDEPENDANT (Firms actions are often coordinated)

Porter's 5 Forces

A framework that identifies 5 forces that determine the profit potential of an industry and shape a firm's competitive strategy -Not only should it define competition as close rivals, but also: buyers, suppliers, and threat of new entrants -The profit potential of an industry is neither random nor entirely determined by industry-specific factors. Rather, it's a function of the 5 forces that shape competition. -Stronger the forces, greater threat it represents -Weaker the forces, greater opportunity it represents -Company should be positioned in a way that relaxes the constraints of strong factors, and leverages weak forces

Monopoly

When there is only one, often large firm supplying the market. Monopoly= Characterized by... 1. One firm 2. Unique product 3. Very high entry barriers 4. Considerable pricing power (LOTS OF PROFIT) -Government might grant firm right to be sole supplier of a particular product/service

Perfectly Competitive Field

A perfectly competitive industry is fragmented and has many small firms, a commodity product, ease of entry, and little nor no ability for each individual firm to raise its prices (pg. 83) -Firms competing in this industry are approximately similar in size and resource -Consumers make decisions solely on price, b/c commodity offering are more or less identical -Resulting performance of the industry shows low profitability -Firms in perfect competition have difficulty achieving even a temporary competitive advantage and can achieve only competitive parity. -Examples are markets for commodities such as: natural gas, copper, and iron. Perfect competition= characterized by.. 1.)many small firms, 2.) a commodity product, 3.)low entry barriers, 4.) no pricing power for individual firms. (Profitability= low, obtain only temporary competitive advantages)