Chapter 5: Industry And Market Environment Flashcards
(7 cards)
Define industry
An industry is an group of organisations supplying a market with similar products using similar technologies to create customer benefit
What are the key stages of an industry
Introduction is when a new product is invented.
Growth is when the market becomes attractive to new entrants and begins to grow rapidly.
Shakeout is when market growth begins to slow and weaker businesses are forced to leave the market or merge with other businesses.
Maturity is a stable period of low growth where smaller companies are shaken out
Decline is when product demand begins to decrease and the industry eventually ceases to exist, however the life cycle of an industry can be extended due to product innovation.
What are porters five forces and what can they be used for?
Porter’s five forces can be used to assess the attractiveness of an industry in terms of long term profitability, the five forces are: competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of customers and bargaining power of suppliers.
Which factors influence the threat of new entrants into an industry?
The factors that encourage entry are high industry growth and profit margins, easy customer switching and a low level of existing competitors. The factors that discourage entry are economies of scale, patents, capital requirements, patents, government subsidies, brand loyalty and access to distribution.
What increases the threat of substitutes within a market?
The availability of substitutes in other industries and sub industries, and the likelihood of customers switching due to lower substitute prices, easy methods of switching, and comparable relative performance of substitutes
What increases customer bargaining power, i.e power to push down prices?
Small number of large customers, competitive market, low customer profitability, low switching costs, low product differentiation, high price transparency
What gives suppliers bargaining power to increase prices?
Few large suppliers, high product differentiation, high switching costs and a large customer range
