EEE 2023 - Chapter 5

Direct competitiors

business offering identical or similar products (ex: coke v. pepsi)

Indirect compeitiors

businesses offering close substitute products (ex: coke v. milk)

Future compeitiors

businesses that are not yet direct or indirect competitors but could be at any time (ex: coke v. ?)

Rivalry Among Existing Firms

can be a major factor affecting industry profitability some industries are fiercely competitive: - prices pushed below the level of costs - industry-wide losses can occur

The five forces model helps a firm determine whether it should enter a particular industry and whether it can ________.

carve out an attractive position in that industry

Because a high level of uncertainty characteristics ________ industries, any opportunity that is captured may be short-lived.

emerging

Microsoft's power as a supplier of computer operating system is _______ by the threat that it might enter the PC industry if PC bankers bank too much at the cost of its software.

enhanced

Buyer Group Concentration

few large buyers + large suppliers = pressure suppliers to lower costs and affects the profitability of the industries they buy from

The five forces model can be used by a firm to ________.

find out whether it can carve out an attractive position in that industry.

Collecting Competitive Intelligence

firm should understand the strategies and behaviors of its competitors - information gather to learn about competitors *must be professional and ethical

A(n) ___________ advantage is a sometimes insurmountable advantage gained by the first company to establish significant position in a new market.

first-mover

Switching costs

fixed costs buyers encounter when switching or changing from one supplier to another; if they're high a buyer will be LESS likely to switch suppliers

A geographic roll-out opportunity is available in a(n) ___________ industry.

fragmented

Buyer Costs

greater importance the item is to a buyer, the more sensitive the buyer will be to the price it pays

Threat of New Entrants

highly profitable industries = higher the attraction of new entrants - firms attempt to keep number of new entrants low by barriers to entry

For Pepsi, milk, tea, and bottled water are _______ competitors.

indirect

The five forces model looks at forces that determine __________ profitability.

industry

At the company level a firm's __________ determine how the company is situated relative to its competitors.

launch

Nontraditional Barriers to Entry

less expensive forms of barriers used to discourage new entrants

In analyzing the pharmaceutical industry for a prospective business launch, Nicole Turco, a PH.D. in pharmacology, concluded that the industry was attractive because the threat of substitutes is _______.

low

Supplier Concentration

only a FEW suppliers that supply a critical product to a LARGE number of buyers, the SUPPLIER had an advantage

In contemplating the launch of her seafood restaurant, Paige Graham concluded that suppliers of seafood had an advantage in bargaining power over restaurants owner in her market. Paige's conclusion is likely to have happened because there were _______ suppliers to provide a critical product to a large number of restaurants.

only a few

It is useful for a new venture to think about its _________________ at both the company level and the product or service level.

position

Threat of Backward Integration

power enhanced if theres a credible threat that the buyer might enter the suppliers industry

Attractiveness of Subsitutes

power is enhanced if theres no attractive substitutes for the product or service the supplier offers.

Threat of Forward Integration

power of a supplier is enhanced if there is a credible possibility the supplier might enter the buyers industry

Each of the five forces in the five forces model represents a threat to industry ________.

profitability

Bargaining Power of Buyers

suppress the profitability of the industries they purchase by demanding price concessions or increase in quality (ex: automobile industry)

Bargaining Power of Suppliers

suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide - quality of the product will suffer and the manufacturer will eventually have to lower its price

Porters Five Forces Model is defined as

the framework for understanding the structure of an industry.

If the price of the United States Postal Services express mail gets too high, people will increasingly attach documents to email messages. This is an example of _________.

threat of substitutes

Competitive Analysis Grid

tool for organizing the information a firm collects about its competitors

Competitor Analysis

tool for organizing the information a firm collects about its competitors

Which one of the following is a question an entrepreneur has to ask before pursuing the idea of starting a firm?

Is the industry a realistic place for a new venture to enter?

Access to distribution channels are a relevant factor in which of the five forces?

Threat of new entrants

Which of the following is NOT a force as per the five forces model? a) threat of substitutes b) bargaining power of stockholders c) bargaining power of suppliers d) threat of new entrants e) rivalry among existing firms

b) bargaining power of stockholders

Prior to launching Pete's Seafood Restaurant, Pete Athelm found that the number of seafood suppliers in his market area was small relative to the number of seafood restaurants. Pete concluded that for restaurants, the __________ is __________.

bargaining power of suppliers; high

According to IBISWorld, the market for e-books is expected to grow at an annual rate of _________ percent over the next 5 years.

3.7

___________ competitors are businesses that offer products or services that are identical or higher similar to those of the firm in question.

direct

The five forces model helps one understand the ________ of an industry.

dynamics

Examples of Nontraditional Barriers to Entry

- strength of management team - first-mover advantage - passion of the management team and employees - unique business model - internet domain name - inventing a new approach to an industry

Examples of Bargaining Power of Suppliers

- supplier concentration - switching costs - attractiveness of substitutes - threat of forward integration

Porters Five Forces Model:

- Threat of Substitutes - Threat of New Entrants - Rivalry among Existing Firms - Bargaining Power of Suppliers - Bargaining Power of Buyers

Examples of Bargaining Power of Buyers

- buyer group concentration - buyer costs - degree of standardization of supplier's products - threat of backward integration

Examples of Barriers to Entry

- economies of scale - product differentiation - capital requirements - cost advantages independent of size - access to distribution channels - government and legal barriers

Threat of Substitutes

- price consumers are willing to pay depending on availability of substitute products - when close substitutes exist, profitability is suppressed, because consumers opt out with increased prices

What are the three key questions to industry analysis?

1. Is the industry accessible? Is it realistic for a new venture (yours) to enter? 2. Does the industry contain markets that are ripe for innovation or are underserved? 3. Are there positions in the industry that avoid some of the negative attributes of the industry as a whole?

It is useful for. a new venture to think about its position at both the ___________ level and the production.

company

Once a firm decides to enter an industry and chooses a market in which to compete, it must gain an understanding of its _________ enviornment.

competitive

A(n) ________ helps identify a firm's primary source of competitive advantage.

competitive analysis grid

Sun Tzu's quote "time spent in reconnaissance is seldom wasted" is relevant to ________.

competitor analysis

Barrier to Entry

condition creating a disincentive for a new firm to enter an industry

A leadership strategy in which a firm tries to become the dominant player in the industry is a strategy that works in _______ industries.

declining

Degree of Standardization of Suppliers Products

degree to which a suppliers product differs from competitors affect the buyers bargaining power

For Delta Airlines, United Airlines is a(n) ________ competitor.

direct