MGMT Chapter 3 Quiz
-Rivalry increases when buy demand is growing or declining. -Rivalry increases as it becomes less costly for buyers to switch brands. -Rivalry increases as the products of rival sellers become less strongly differentiated. -Rivalry is more intense when there is excess supply or unused production capacity, especially if the industry's product has high fixed costs or high storage costs. -Rivalry intensifies as the number of competitors increases and they become more equal in size and capability. -Rivalry becomes more intense as the diversity of competitors increases in terms of long-term direction, objectives, strategies, and countries of origin. -Rivalry is stronger when high exit barriers keep unprofitable firms from leaving the industry.
A brief explanation of why these factors affect the degree of rivalry is in order:
Innovating to improve product performance and quality
Acts to increase product differentiation and value boosts buyer demand, acts to boost total sales volume, likely to increase unit costs
Increasing customzaiton of product or service
Acts to increase product differentiation and value increases switching costs, acts to boost total sales volume, often increases unit costs.
Introducing new or improved features, increasing the number of styles to provide greater product selection
Acts to increase product differentiation and value strengthens buyer demand, acts to boost total sales volume and market share, likely to increase unit costs.
Improving warranties, offering low-interest financing
Acts to increase product differentiation and value, increases unit costs, increase buyers costs to switch brands, acts to boost total sales volume and market share.
Couponing, advertising items on sale
Acts to increase unit sales volume and total revenues, lowers price, increases unit costs, may lower profit margins per unit sold.
Advertising product or service characteristics, using ads to enhance a company's image
Boosts buyer demand, increases product differentiation and perceived value, acts to increase total sales volume and market share, may increase unit costs and/or lower profit margins per unit sold.
Building a bigger, better dealer network
Broadens access to buyers, acts to boost total sales volume and market share, may increase unit costs.
Direction, objectives, strategy, and business model
By strategically relevant, we mean important enough to have a bearing on the decisions the company ultimately makes about its long-term ____________,___________,____________, and ______________.
1. Determining where the industry boundaries lie 2. Figuring out which other products or services can address the same basic customer needs as those produced by industry members.
Company managers must identify the substitutes:
Price Discounts Ramped-up advertising Special sales promotions New product features Additional customer service
Defensive maneuvers against potential entrants may include:
PESTEL Analysis
Focuses on the six principal components of strategic significance in the macro-environment: Political, Economic, Social, Technological, Environmental, and Legal Forces.
licenses and permits
Government agencies can also limit or even bar entry by _______________________.
1. The expected reaction of of incumbent firms of new entry 2. What are known as barriers to entry
How serious the competitive threat of entry is in a particular market depends on two classes of factors:
Step 1: For each of the five forces, identify the different parties involved, along with the specific factors that bring about competitive pressures. Step 2: Evaluate how strong the pressures stemming from each of the five forces are either strong, moderate, weak. Step 3: Determine whether the strength of the five forces, overall, is conducive to earning attractive profits in the industry
In brief, using the five factors model to determine the nature and strength of competitive pressures on companies within an industry come from five sources.
Sociocultural Forces
Include societal values, attitudes, cultural factors, and lifestyles that impact businesses, as well as demographic factors such as the population size, growth rate and age distribution.
Economic Conditions
Include the general economic climate and specific factors such as interest rates, exchange rates, the inflation rate, and the unemployment rate, the rate of economic growth, trade deficits or surpluses, savings rates, and per capita domestic product.
Technological Factors
Include the pace of technological change and developments that have the potential for wide-ranging effects on society, such as genetic engineering and nanotechnology.
Legal and Regulatory Factors
Include the regulations and laws with which companies must comply such as consumer laws, labor laws, antitrust laws, and occupational health and safety regulation.
Environmental Forces
Includes ecological and environmental forces such as weather, climate, climate change, and associated factors like water shortages.
Price Discounting, clearance sales
Lowers price, acts to boost total sales volume and market share, lowers profit margins per unit sold when price cuts are big and/or increases in sales volume are relatively small.
one or more mavericks willing to try novel or rule-breaking market approaches, thus generating a more volatile and less predictable competitive environment.
Rivalry becomes more intense as the diversity of competitors increases in terms of long-term directions, objectives, strategies, and countries of origin-a diverse group of sellers often contains:
increase their meager market share often engage in price-cutting activities to drive sales, leading to intense rivalry
Rivalry intensifies as the number of competitors increases and they become more equal in size and capability-when there are many competitors in a market, companies eager to:
Strategically Relevant Factors
Since macroeconomics factors affect different industries in different ways and to different degrees, it is important for managers to determine which of these represent the most ____________ outside the firm's industry boundaries.
Political Factors, Economic Conditions in the Firm's Gen. Environment Sociocultural Forces Technological Factors Environmental Factors Legal/Regulatory Conditions
The Macro-environment comprises of six principal components:
risker
The bigger cost advantages of industry incumbents, the __________it becomes for outsiders to attempt entry.
1. Scale economics in production, distribution, advertising, or other activities. 2. The learning-based costs savings that accrue from experience in performing certain activities such as manufacturing or new product development or inventory management. 3. Cost-savings accruing from patents or proprietary technology 4. Exclusive partnerships with the best and cheapest suppliers of raw materials and components 5. Favorable location 6. Low fixed costs.
The cost advantage of industry incumbents can stem from:
the more limited the pool of potential entrants.
The larger the total dollar investment needed to enter the market successfully,_________________________________.
Higher
The lower the price of substitutes, the ____________ their quality and performance.
more intense
The lower the user's switching costs, the ________________ the competitive pressures posed by substitute products.
-Cost advantages enjoyed by industry incumbents. -Strong brand preferences and high degrees of customer loyalty. -Strong "network effects" in customer demand -High Capital Requirements -The difficulties of building a network of distributors or dealers and securing adequate space on retailer's shelves. -Restrictive Government Policies
The most widely encountered barriers that entry candidates must hurdle include the following:
the harder it is for a newcomer to break into the marketplace.
The stronger the attachment of buyers to established brands,_____________________________________________.
current industry participants looking for growth opportunities.
The strongest competitive pressures associated with potential entry frequently come not from outsiders, but from _____________________________.
Rivalry for buyer patronage among competing sellers of a product or service
The strongest of the five competitive forces is often:
Political Factors
These factors include political policies and processes, including the extent to which a government intervenes in the economy.
1. Competition from rival sellers 2. Competition from potential new entrants to the industry 3. Competition from producers of substitute products 4. Supplier bargaining power 5. Customer bargaining power
What are the five forces model of competition.
Moderate
When rivalry is _________, a more normal state, the maneuvering among industry members, while lively and healthy, still allows most industry members to earn acceptable profits.
Weak
When rivalry is _________, most companies in the industry are relatively well satisfied with their sales growth and market shares, rarely undertake offensives to steal customers away from one another, and earn consistently good profits and returns on investment.
Strong
When rivalry is __________, the battle for market share is generally so vigorous that the profit margins of most industry members are squeezed to bare-bones levels.
Perishable or seaonsal
When rivalry is more intense when there is excess supply or unused production capacity, especially if the industry's product has high fixed costs or high storage costs, a similar effect occurs when a product is _____________ or _____________, since firms often engage in aggressive price cutting to ensure that everything is sold.
1. Whether substitutes are readily available and attractively priced. 2.Whether buyers view the substitutes as being comparable or better in terms of quality, performance, and other relevant attributes. 3. Whether the costs that buyers incur in switching to the substitutes are low or high.
Whether the competitive pressures from substitute products are strong, moderate, or weak depends on three factors:
Macro-Environment
encompasses the broad environmental context in which a company's industry is situated.