Integrated Policy and Strategy - Chapter 3

Oligopoly

-few firms -some pricing power -differentiated product -high entry barriers

Perfect Competition

-many firms -price takers -commodity product -low entry barriers

Monopolistic Competition

-many firms -some pricing power -differentiated product -medium entry barriers

Monopoly

-one firm -considerable pricing power -unique product -very high entry barriers

Insights from Strategic Group Mapping

1. Competitive rivalry: -Strongest between firms in the same strategic group 2. External environment: -Affects strategic groups differently 3. Five competitive forces: -Affect strategic groups differently 4. Profitability: -Some strategic groups are more profitable than others

How to Create a Strategic Group Model

1. Identify the important strategic dimensions. 2. Choose two key dimensions for horizontal and vertical axes. 3. Ensure they're not highly correlated. 4. Graph the firms in the strategic group. 5. Each firm's market share indicated by the size of the bubble

Complements (sixth force)

A product, service, or competency that adds value when used with the original product. • Complements increase demand for the primary product. • Enhances the profit potential for the industry and the firm.

Strategic groups

A set of companies that pursue a similar strategy within the same industry

Firms that compete within the same strategic group generally experience A) more competitive rivalry than firms outside their strategic group B) less competitive rivalry than firms outside their strategic group. C) the same competitive rivalry than firms outside their strategic group. D) no competitive rivalry because they are substitutes.

A) more competitive rivalry than firms outside their strategic group

Firms that are classified as operating in an oligopoly tend to have some pricing power if they are able to differentiate their product or service offerings from those of their competitors, so the recommended mode of competition is A) non-price-based competition. B) price-based competition. C) hypercompetition D) service-based competition

A) non-price-based competition.

In recent years a growing number of U.S. consumers have become more health-conscious about what they eat. According to the PESTEL Framework this trend could best be classified as a ________ trend. A) sociocultural B) healthy eating C) political D) legal

A) sociocultural

A firm's ________ relates to its ability to create value for customers (V) while containing the cost to do so A) strategic position B) growth strategy C) industry analysis D) co-operative strategy

A) strategic position

Which of the following external forces is a part of a firm's task environment? Correct answer: A) the composition of the strategic group to which the firm belongs B) the interest rates prevalent in the economy in which the firm operates C) the inflation level in the economy in which the firm operates D) the recent innovations in process technology, including lean manufacturing

A) the composition of the strategic group to which the firm belongs

Industry Growth

Affects intensity of rivalry among competitors. During periods of high growth: • Consumer demand rises. • Price competition among firms decreases. During periods of negative growth: • Rivalry is fierce. • Rivals can only gain at the expense of one another. • Price discounts, promotional campaigns, and retaliation abound

Porter's Five Forces

Analyzes the profit potential of different industries, and how firms can position themselves to gain and sustain competitive advantage. 1. threat of new entrants 2. threat of substitute 3. bargaining supplier power 4. bargaining buyer power 5. existing competitive rivalry

Amanda is a management consultant for a soda manufacturer that wants to expand into health drinks such as green tea and after-workout drinks. Based on what you have read, which of these is sensible advice for Amanda to offer her client? A) "Pinpoint the best time to enter this new market, and then make a yes-or-no decision quickly." B) "Carefully consider the entry choices over time before making a decision." C) "Your best bet is to undercut competitors' prices and lure them into a price war." D) "Focus on what your company does well rather than trying to expand into untried areas."

B) "Carefully consider the entry choices over time before making a decision."

Ecological Factors

Broad environmental issues: • Natural environment. • Global warming. • Sustainable economic growth.

Steve manages product design and development at a toy company. The junior managers who report to him tell him that new complementors for the firm's products are available. What should Steve's reaction be? A) He should consult lawyers about the possibility of suing for copyright infringement. B) If the industry barriers to entry are low, he doesn't need to do anything. C) He needs to find out if his company as well as other companies can provide the complements. D) If the industry barriers to entry are high, he doesn't need to do anything.

C) He needs to find out if his company as well as other companies can provide the complements.

All Signal Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all All Signal users are free. When a person switches to an All Signals network, his or her entire network of family and friends is likely to switch to the same network to receive the benefit of free calls and messages. In addition, an existing user who gets a new user to register with All Signal Inc. is given a free wireless connection. This has helped to keep competition away from All Signal. In this scenario, which of the following factors is acting as an entry barrier for All Signal Inc.? A) economies of scale B) high capital requirement C) network effects D) high fixed costs

C) network effects

Makita, DuPont, Builder's Square, and Nut's & Bolts are all hardware stores that compete against each other through everyday low pricing and discounts on bulk purchases. All four stores cater to the needs of highly price-sensitive customers. Thus, together these stores form a ________ group. A) focus B) command C) strategic D) cross-functional

C) strategic

Pam owns Discount Auto Zone, a company that got its start making auto parts related for hybrid vehicles, but her firm has had difficulty establishing itself as a maker of parts for the more profitable internal combustion engine. What is most likely contributing to Discount Auto Zone's problem in this area? A) Newcomers cannot use existing assets or reconfigure their value chains. B) New competitors usually ignore stakeholders who are not stockholders. C) It is difficult for outsiders to gauge which stage of the "life cycle" that industry is in. D) Entry barriers usually protect the incumbent players in a profitable industry

D) Entry barriers usually protect the incumbent players in a profitable industry

Jennifer manages a chain of bars and restaurants in a tri-county area that has recently experienced an economic boom because of fracking and high oil prices. What is most likely to happen when there is too much money in the tri-county economy? A) too many goods and services B) a drop in interest rates C) high economic growth D) an increase in prices

D) an increase in prices

WeClean Inc., a manufacturer of cleaning agents, supplies its products to Goodings Inc., a supermarket chain. It demands that Goodings create more shelf space in its stores for WeClean s' products. However, Goodings Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, Goodings Inc. has exercised its bargaining power as a buyer through A) price stability. B) retroactive market share. D) backward integration. C) enhanced technology. D) backward integration.

D) backward integration.

Competitive Industry Structure

Defined by: -number and size of companies -firm's degree of pricing power -type of product or service -height of entry barriers

Strategic Commitments

Firm actions that are: • Costly, long-term oriented and difficult to reverse.

PESTEL Model

Groups environmental/external factors into six segments: 1. Political. 2. Economic. 3. Sociocultural. 4. Technological. 5. Ecological. 6. Legal

Technological Factors

Innovations in process technology, Innovations in product technology, Advances in artificial intelligence and machine learning

Economic Factors

Largely macroeconomic. Affect economy-wide phenomena. Examples: • Growth rates. • Levels of employment. • Interest rates. • Price stability. • Currency exchange rates.

Power of Buyers

Lowers industry profit potential if: • Buyers obtain price discounts, which reduces revenue. • Buyers demand higher quality / service, which raises production costs.

Threat of Substitutes

Meet the same basic customer need: • In a different way. • Available from outside the given industry

Exit Barriers

Obstacles that determine how easily a firm can leave that industry. Mainly economic and social factors. Include fixed costs that must be paid

Legal FactorsOfficial outcomes of political processes: • Laws. • Mandates. • Regulations. • Court decisions.

Official outcomes of political processes: • Laws. • Mandates. • Regulations. • Court decisions.

Power of Suppliers

Pressures that industry suppliers can exert on an industry's profit potential. Lowers industry profit potential if: • Suppliers demand higher prices for their inputs. • Suppliers capture part of the economic value created.

Political Factors

Processes and actions of government bodies that influence the firm can be shaped through: • Lobbying. • Public Relations. • Contributions. • Litigation.

Mobility Barriers

Restrict movement between strategic groups. Industry-specific factors that separate one group from another. Based on hard-to-reverse investments (strategic commitments)

Sociocultural Factors

Society's cultures, norms, and values Demographic trends: • Population characteristics. • Age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

Rivalry Among Competitors

The intensity with which companies in the same industry jockey for market share and profitability.

Threat of Entry

The risk that potential competitors will enter an industry: • Lowers industry profit potential. • Increases spending among incumbent firms.

Industry Convergence

When unrelated industries begin to satisfy the same customer need. Caused by technological advances.

Co-opetition

cooperation among competitors to achieve a strategic objective.

Task Environment

includes entities that directly affect a firm on a constant basis and include competitors, suppliers, and customers Managers can influence

Backward integration

occurs when a buyer moves upstream in the industry value chain, into the seller's business.

Industry Dynamics

provides insight about: • Changing speed of an industry. • Rate of innovation. • Help capture structural changes in the industry.

General Environment

the economic, technological, sociocultural, and political/legal trends that indirectly affect all organizations Managers have little control

Firm Effects

• Attribute firm performance to the manager's actions. • More important than industry effects. Make up 55% of firm's performance

Industry Effects

• Describe the economic structure of the industry. • Elements in common to all. • Entry and exit barriers, number and size of companies, and types of products and services offered Make up 20% of firm's performance

Industry Analysis

• Identify an industry's profit potential. • Derive implications for a firm's strategic position.