Threat of New Entrants: Barriers to Entry Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation Barriers to Entry Economies of Scale Marginal improvements in efficiency that a firm experiences as it incrementally increases its size Factors (advantages and disadvantages) related to large- and small-scale entry Flexibility in pricing and market share Costs related to scale economies Competitor retaliation Barriers to Entry (cont’d) Product differentiation
Unique products Customer loyalty Products at competitive prices Capital Requirements Physical facilities Inventories Marketing activities Availability of capital Switching Costs One-time costs customers incur when they buy from a different supplier New equipment Retraining employees Psychic costs of ending a relationship Access to Distribution Channels Stocking or shelf space Price breaks Cooperative advertising allowances Barriers to Entry (cont’d) Cost Disadvantages Independent of Scale Proprietary product technology Favorable access to raw materials Desirable locations Government policy
Licensing and permit requirements Deregulation of industries Expected retaliation Responses by existing competitors may depend on a firm’s present stake in the industry (available business options) Bargaining Power of Suppliers Supplier power increases when: Suppliers are large and few in number. Suitable substitute products are not available. Individual buyers are not large customers of suppliers and there are many of them. Suppliers’ goods are critical to the buyers’ marketplace success. Suppliers’ products create high switching costs. Suppliers pose a threat to integrate forward into buyers’ industry.
Bargaining Power of Buyers Buyer power increases when: Buyers are large and few in number. Buyers purchase a large portion of an industry’s total output. Buyers’ purchases are a significant portion of a supplier’s annual revenues. Buyers’ switching costs are low. Buyers can pose threat to integrate backward into the sellers’ industry. Threat of Substitute Products The threat of substitute products increases when: Buyers face few switching costs. The substitute product’s price is lower. Substitute product’s quality and performance are equal to or greater than the existing product.
Differentiated industry products that are valued by customers reduce this threat. Intensity of Rivalry Among Competitors Industry rivalry increases when: There are numerous or equally balanced competitors. Industry growth slows or declines. There are high fixed costs or high storage costs. There is a lack of differentiation opportunities or low switching costs. When the strategic stakes are high. When high exit barriers prevent competitors from leaving the industry. Interpreting Industry Analyses Interpreting Industry Analyses (cont’d) Strategic Groups Strategic Group Defined
A set of firms emphasizing similar strategic dimensions and using similar strategies Internal competition between strategic group firms is greater than between firms outside that strategic group. There is more heterogeneity in the performance of firms within strategic groups. Similar market positions Similar products Similar strategic actions Strategic Groups Strategic Dimensions Extent of technological leadership Product quality Pricing Policies Distribution channels Customer service Competitor Analysis Competitor Intelligence The ethical gathering of needed information and data that provides insight into:
A competitor’s direction (future objectives) A competitor’s capabilities and intentions (current strategy) A competitor’s beliefs about the industry (its assumptions) A competitor’s capabilities FIGURE 2. 2 Competitor Analysis Components Complementors Complementors The network of companies that sell complementary products or services or are compatible with the focal firm’s own product or service. If a complementor’s product or service adds value to the sale of the focal firm’s product or service, it is likely to create value for the focal firm.
However, if a complementor’s product or service is in a market into which the focal firm intends to expand, the complementor can represent a formidable competitor. Ethical Considerations Practices considered both legal and ethical: Obtaining publicly available information Attending trade fairs and shows to obtain competitors’ brochures, view their exhibits, and listen to discussions about their products Practices considered both unethical and illegal: Blackmail Trespassing Eavesdropping Stealing drawings, samples, or documents ———————– [pic] [pic]
