Chapter 5 - The industry and market environment Flashcards
(15 cards)
What is an industry?
An industry is a group of organisations supplying a market offering similar products using similar technologies to provide customer benefits.
Whole industries may pass through different phases of the life cycle. What are the phases:
Introduction;
Growth;
Shakeout;
Maturity;
Decline.
Industry lifecycles may mirror the underlying product life cycle (the industry ceases to exist when the product is discontinued). However, industry life cycles can be expanded by product innovation.
Introduction
Characteristics
- Large amounts of research and development and marketing
- New product or service is invented
- There can be significant FIRST MOVER ADVANTAGE for the first firms in the market. (reputation and experience)
Growth
characteristics
- When alien gains/rapid growth occurs
- Market becomes attractive to new entrants
- Competitive rivalry is relatively low as firms are experiencing growth without having to increase market share
Shakeout
characteristics
The market growth begins to slow
Weaker players are forced to leave the industry or merge with another company
Maturity
characteristics
Cash cow period
This is a stable period of low growth
As growth slows down at the start of the maturity phase price competition intensifies and smaller competitors (who lack scale of economies) are shook-out of the industry.
Decline
Characteristics
Sales volumes start to fall as demand for the industries products decline
Firms leave the industry and eventually it ceases to exist
COULD BE DUE TO PESTEL FACTORS
What is the model for assessing the attractiveness of an industry in terms of long run profitability
Porter’s five forces
What are the components of PFF
Threat of new entrants
Bargaining power of suppliers
Bargaining power of customers
Threat of substitutes
= Competitive rivalry
What comes under threat of new entrants?
How likely is it that new players will enter the market?
A) is the market attractive?
B) are there barriers to entry
What comes under Competitive rivalry
How intense the competition is among existing players in the market.
greater competition if:
- Large No. of existing comp
- High levels of Fixed costs
- Low industry growth
- Low switching costs
- High exit barriers
- High strategic importance
What comes under threat of substitutes?
Are substitutes available and are consumers likely to switch to them?
Available: diff industries (rail to bus) / sub industries (CDs to MP3)
Increase likelihood:
- Price substitution is low
- Relative performance of substitute is comparable
- Customers can switch easily
What comes under Power of customers
Do customers have enough bargaining power to push down prices?
This will be higher if there are:
small numbers of large customers
large numbers of competitors
low levels of product differentiation
low switching costs
the customers own profitability is low
high degree of price transparency in the market
Power of suppliers
Do suppliers have enough bargaining power to increase their prices?
Several different types of suppliers should be considered. These include:
Providers of raw materials
Service providers and outsourced services
Employees and hire workers
What would increase the bargaining power of suppliers?
Their bargaining power will be increased if:
There are a few large suppliers
The supplier’s products are differentiated
High switching costs for the customers (the industry being analysed)
The supplier has other buyers they can sell to instead
