UNIT 8- External Environment Flashcards
(17 cards)
Porter’s five forces
A framework to look at the attractiveness to a business, in terms of profitability, of markets
- enemy threat (the likelihood of new businesses joining the industry)
- bargaining power of customer
- bargaining power of suppliers
- intensity of competitive rivalry
- threat of substitute products
Entry threat
in a static market the new business will look to gain market share,
barriers to entry are factors that may stop this, including;
- high costs to enter the market
- economies of scale (bulk buying)
- patents, trademarks, monopolies (legal barriers) - eg. Google as a search engine
- unfair competition (predator pricing)
- government regulation
Buyer and supplier power
For buyer power, depends on the number of substitutes and alternatives
For supplier power- availability of substitutes, quality
Eg- OPEC which controls the supply of oil by restricting supply
Rivalry
+ threat of substitutes
The decree of competition
Monopoly = one business dominates the market
Duopoly = two businesses dominating the market
Oligopoly = a small number of businesses dominate the market
Monopolistic competition = many businesses compete in the industry selling differentiated products
How the focus shape competitive strategy
Look at the impact of each force on the profits of an industry and how this is shared out between businesses
Marketing strategies
Corporate objectives
Marketing objectives
Market analysis
Marketing strategy
(How the business will go about achieving its marketing objectives)
Ansoff’s matrix
Products
existing New
Markets- existing Market penetration Product development
- New Market development. Diversification
Market penetration
+ evaluation
Selling more of your existing products to your existing customers
- repurposing
- adapting the marketing mix (7Ps)
- additional features
- gain market share from competitors
- encourage more consumption
Evaluation- the business is focusing on markets and products it knows well
- it is likely to have good information on customers and competitors
- unlikely to need new market research
- low risk strategy with little reward
Product development
Where businesses introduce new products into existing markets
- uses the strengths of established businesses
- strong emphasis on market research and innovation
- good methods of expand in the customer base
- may enable first mover advantage
Market development
Growth strategy where the business seeks to sell existing products into new markets through entering international markets, changing distribution channels (online), alter the price to appeal to a different market
Eg- star bucks in China (success), Tesco in the US (failure)
- John Lewis lower price appeal
Evaluation- will the product translate/ be accepted a round
- will customers be alienated
- a local strategy where existing markets are saturated or in decline
- a lot of government support for this strategy as the wish to promote international trade
Diversification
Selling new products to new markets
- greatest risk as the two elements are unfamiliar (both brand and products) to potential customers
- greatest potential for rewards
- requires heavy investment
- brand name can be strengthened or weakened
Porters generic strategies
Attempts to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market
- porter’s overall approach was the two strategies a business could adopt, differentiation and low cost to gain competitive advantage
Porters generic strategies graph
Market were the business competes
Broad. Narrow
Source of Costs Cost leadership. Cost focus
Competitive
advantage Differentiation Differentiation leadership. Diff. Focus
Cost Leadership: Competing by becoming the lowest-cost producer in the industry, targeting a broad market (e.g., Tesco uses economies of scale to keep prices low).
Differentiation: Offering unique products or services that customers perceive as valuable, allowing premium pricing (e.g., Tesco’s premium product lines).
Cost Focus: Targeting a narrow market segment and being the lowest cost within that niche.
Focused Differentiation: Targeting a narrow market segment with unique product offerings tailored to that segment’s needs.
Low cost strategy (differentiation leadership-broad and focus-niche)
-why its a source of competitive advantage
- likely features
+examples
Objectives is to become the lowest-cost operator
(Typically involves production on a large scale to exploit economies of scale)
- can enjoy the highest profit or offer the lowest prices
(Suitable in markets for standard products, little product differentiation and where branding is relatively unimportant)
Likely features of low-cost operators-
High levels of productivity, efficiency and capacity utilisation,
Bargaining power to negotiate low prices from suppliers,
Lean production methods and access to wide distribution channels
- poundland, also, Ryanair
Stategy of focus(in a niche/narrow market) and differentiation (in a broad market)
+ examples
A differentiation strategy aims to offer a product that is distinctively different from the competition, with the customer valuing the differentiation
Was to achieve it-
- better product quality (features, benefits, reliability, durability)
- branding (strong customer recognition and desire, brand loyalty)
- wide distribution across all major channels
- sustained promotion
Examples- apple, Dyson, costa, premier inn
“Stuck in the middle”
Where products are ‘stock in the middle’- not cheap or different enough, confusing customers and negatively affect sales
Eg- Morrisons, WHSmith
Hybrid strategies
Differentiation and low cost-
Eg IKEA
Achieved its low prices via cost leadership-
- Furniture is flat packed to reduce storage space
- large, out of town retail units spread fixed costs
- products are made in China and Malaysia, reducing unit costs
- low margins + high volume allows for economies of scale
Differentiates using-
- Unique and unusual designs
- localisation of product range
- targeting (mainly) the young global middle class
