5. The industry and market environment

Question 1

What are the key stages of an industry life cycle?

Answer 1

Introduction (production is low)
Growth (sales volume increases)
Shakeout (Loose competition)
Maturity (High profits)
Decline (Sales volume falls)

Question 2

What is porter’s 5 forces?

Answer 2

Analysis used to assesses the attractiveness of an industry

Question 3

What are the five competitive forces (Porters 5 forces) which determine the level of competition and therefore profitability of the industry?

Answer 3

Threat of new entrants
Threat of substitutes
Bargaining power of customers
Bargaining power of suppliers
Competitive rivalry

Question 4

How to assess the threat of new entrants?

Answer 4

Consider the likelihood of new players entering the market

Question 5

How to assess the competitive rivalry in the area?

Answer 5

Consider how intense the competition is among existing players

Question 6

How to assess the threat of substitutes?

Answer 6

Consider whether substitutes are available and are consumers likely to switch to them?

Question 7

How to assess the power of customers?

Answer 7

Consider whether customers have enough bargaining power to push down prices

Question 8

How to assess the power of suppliers?

Answer 8

Consider whether suppliers have the bargaining power to increase their prices