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BUSN 495 Exam 2 - Chapter 3
Terms in this set (26)
5 forces model of competition
suppliers, substitutes, buyers, potential entrants, industry rivalry
Five Forces Model of Competition
1) firms in other industries offering substitute products
2) suppliers of raw materials, parts, components, or other resource inputs
3) potential new entrants
5) rivalry among competing sellers
Rivalry among competing sellers
competitive pressures created by the jockeying of rival sellers for better market position and competitive advantage
Strategic group mapping
Is a technique for graphically displaying the different market or competitive positions that rival firms occupy in the industry.
a cluster of industry rivals that have similar competitive approaches and market positions
Strategic Group Mapping Procedures
1. Identify the competitive characteristics that delineate strategic approaches used in the industry.
- Typical variables used in creating strategic group maps are the price/quality range (high, medium, low), geographic coverage (local, regional, national, global), degree of vertical integration (none, partial, full), product-line breadth (wide, narrow), choice of distribution channels (retail, wholesale, Internet, multiple channels), and degree of service offered (no-frills, limited, full).
2. Plot firms on a two-variable map based upon their strategic approaches.
3. Assign firms occupying the same map location to a common strategic group.
4. Draw circles around each strategic group, making the circles proportional to the size of the group's share of total industry sales revenues.
Guidelines for Strategic Group Map Construction
- The variables used as map axes must not be highly correlated.
- Variables must reflect large differences in how rivals are positioned to offer customer value in their marketplace.
- Variables can be either quantitative or continuous; can be discrete variables or distinct classes and combinations.
- Draw circle sizes proportional to combined sales of each strategic group to show the relative sizes of each strategic group.
- Use various competitive variables as map axes, multiple maps can show different views of competitive positioning in the industry.
Value of Strategic Group Maps
- The closer groups are to each other on the map, the stronger the cross-group rivalry.
•Firms in groups that are far apart hardly compete.
- Not all map positions are equally attractive.
•Some groups are more favorably positioned because they confront weaker competitive forces.
•Industry driving forces favor some groups over others.
•Competitive pressures cause profit potential differences.
the major underlying causes of change in industry and competitive conditions
Some ______ originate in the outer ring of the company's macro-environment but most originate in the company's more immediate industry and competitive environment.
Common driving forces
- Changes in the long-term industry growth rate.
- Increasing globalization.
- Emerging new Internet capabilities and applications.
- Changes in who buys the product and how they use it.
- Product innovation.
- Technological change and manufacturing process innovation.
- Marketing innovation.
- Entry or exit of major firms.
Common driving forces
- Diffusion of technical know-how across more companies and more countries.
- Changes in cost and efficiency.
- Growing buyer preferences for differentiated products instead of a standardized commodity product (or for standardized products instead of strongly differentiated products).
- Regulatory influences and government policy changes.
- Changing societal concerns, attitudes, and lifestyles.
Key Success Factors
the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace
Key success factors
competitive factors that most affect the ability of all industry firms to survive and prosper in the marketplace
Key Success factors
•Specific product attributes.
•Necessary resources, competencies, and capabilities.
•Specific intangible assets.
Questions to Ask in Identifying Industry Key Success Factors
- Which crucial product attributes do industry buyers consider when choosing between competing sellers?
- Which resources and competitive capabilities must a company have to be competitively successful?
- Which shortcomings are certain to put a company at a significant competitive disadvantage to its rivals?
Common Types of Key Success Factors
- Technology related
- Manufacturing related
- Distribution related
- Marketing related
- Skills and capability related
Technology-related key success factors
•Expertise in a particular technology or in scientific research (important in pharmaceuticals, Internet applications, mobile communications, and most high-tech industries)
•Proven ability to improve production processes (important in industries where advancing technology opens the way for higher manufacturing efficiency and lower production costs)
Manufacturing-related key success factors
•Ability to achieve scale economies and/or capture experience curve effects (important to achieving low production costs)
•Quality control know-how (important in industries where customers insist on product reliability)
•High utilization of fixed assets (important in capital-intensive/high fixed-cost industries)
•Access to attractive supplies of skilled labor
•High labor productivity (important for items with high labor content)
•Low-cost product design and engineering (reduces manufacturing costs)
•Ability to manufacture or assemble products that are customized to buyer specifications
Distribution-related key success factors
•A strong network of wholesale distributors/dealers
•Strong direct sales capabilities via the Internet and/or having company-owned retail outlets
•Ability to secure favorable display space on retailer shelves
Marketing-related key success factors
•Breadth of product line and product selection
•A well-known and well-respected brand name
•Fast, accurate technical assistance
•Courteous, personalized customer service
•Accurate filling of buyer orders (few back orders or mistakes)
•Customer guarantees and warranties (important in mail-order and online retailing, big-ticket purchases, and new-product introductions)
Skills and capability-related key success factors
•A talented workforce (superior talent is important in professional services such as accounting and investment banking)
•National or global distribution capabilities
•Product innovation capabilities (important where rivals are racing to be first to market with new product attributes or performance features)
•Design expertise (important in fashion and apparel industries)
•Short delivery time capability
•Supply chain management capabilities
•Strong e-commerce capabilities—a user-friendly website and/or skills in using Internet applications to streamline internal operations
Other types of key success factors
•Overall low costs (not just in manufacturing) to be able to meet low-price expectations of customers
•Convenient locations (important in many retailing businesses)
•Ability to provide fast, convenient, after-the-sale repairs and service
•A strong balance sheet and access to financial capital (important in newly emerging industries with high degrees of business risk and in capital-intensive industries)
Examples of Industry Key Success Factors
- Expertise in a particular technology.
- Scale economies.
- Experience curve benefits.
- High capacity utilization.
- Strong network of wholesale distributors.
- Brand-building skills.
- Convenient retail locations.
Competitive intelligence can be gleaned from
company press releases, company websites, management presentations, and annual reports and 10-K filings
Driving force analysis steps
1) Identifying what the driving forces are
2) assessing whether the drivers of change are acting to make the industry more or less attractive
3) determining what strategy changes are needed to prepare for the impact of the driving forces
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