3 strategy module 3 2012
TRANSCRIPT
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CustomersSuppliers - Competitors
1. Factors influencing different buyers.
Consumers
Availability Price Variety
Convenience Quality Warranty
Credit Reputation
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CustomersSuppliers - Competitors
1. Factors influencing different buyers.
Retailers and/or Whole-sellers
Competitive product Product turnover
Consumer recognition Profit potential
Product availability Promotional &
merchandising supply
Product line breadth Supply dependability
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CustomersSuppliers - Competitors
1. Factors influencing different buyers.Industrial and/or Institutional buyers
Cost Vs profitability Price Product
Performance
Financing Productinformation
Sourceavailability
Legal conformity Product line Technicalassistance
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CustomersSuppliers- Competitors
Reference to Michael Porter on relative power of supplier.
1. The power of the supplier to raise profits, the fartheraway greater the power.
2. The power the supplier has to raise prices and lowerbuyer profits is reduced if the buying firm is a
monopolist or oligopolist.
3. The power is greatest when buyer is not an importantcustomer
4. The power is greatest when business is integrated.
5. The supplier threat can be offset by backwardintegration.
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CustomersSuppliers - Competitors
Four Factors need to examines regarding competition
1. Entry and Exitof major competition.
2. Substitutes and Complements forcurrent product of services and majorstrategic changes by currentcompetition.
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Porters Model of Industry Attractiveness
2
Potential Entrants
Economies of Scale
Absolute Cost Advantage
Brand Identity
Access to List
Switching Cost
Government Policy
1
The Industry Competitions
Numbers of Group
Industry Growth
Access Intensity
Product Differentiation
Exit Barriers
3
Substitutes
Functional Similarity
Price/Performance Trend
Product Identity
4
Suppliers
Supplier Concentration
Number of Buyers
Switching Cost
Substitute Raw Materials
Threat of Forward Integration.
5
Buyers
Buyer Concentration
List of Suppliers
Switching Costs
Substitute Products
Threat of Backward
Integration
Bargain
Power of
Suppliers
Bargain
Power ofCustomers
Threat of Entrant
Threat of Substitute
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Barriers to Entry
Economies of Scale
Product Differentiation
Brand Identity
Switching Cost Capital Requirements
Access to Distribution
Channels
Absolute Cost Advantages
Proprietary Learning Curve
Access to necessary inputs
Government Policy Expected Retaliation
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Barriers to Exit
Managerial values prevent it
Other product services are related to exit candidates
Costs are sunk in assets
Direct exit costs are high
Indirect cost may reduce Exit behaviour
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Determinants of Rivalry
Industry growth
Fixed (or storage) cost/value added
Intermittent Capacity
Product Differences
Brand Identity Switching costs
Concentration of Balances
Informational complexity
Diversity of competitors
Exit barriers
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Determinants of Substitution Threat
Relative price/ Performance of substitute
Switching costs
Buyer propensity to substitute
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Determinant of Supplier Power
Differentiation of Inputs Switching costs of suppliers and firms in the industry
Presence of substitute inputs
Supplier concentration
Importance of volume to supplier
Cost relative to total purchaces in the industry
Impact of inputs on cost or differentiation
Threats of forward integration relative to threat ofbackward integration by firms in the industry
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Determinant of Buyer Power
Bargaining leverage
Buyer concentration vsfirm concentration
Buyer volume
Buyer switching costs
relative to firm switchingcosts
Buyer information
Ability to backward
integrate Substitute products
Pull through
Price sensitivity
Price/Total purchases
Product differences
Brand identity Impact on
quality/performance
Buyer profits
Decision makersincentive
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Intensity of Competitive rivalry (rivalry)
Increases and profit falls as numbers of Competitorsincrease
Increases as industry slows
Increases, where costs are high
Increases as products become less differentiated
Increases as industry become more diverse in
personality, strategic approach
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FIGURE2.2 The Five Forces of Competition
Model
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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
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Barriers to Entry (contd)
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
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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.
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Bargaining Power of Buyers
Buyer power increases when:
Buyers are large and few in number.
Buyers purchase a large portion of an industrys
total output.
Buyers purchases are a significant portion of a
suppliers annual revenues.
Buyers switching costs are low.
Buyers can pose threat to integrate backward into
the sellers industry.
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Threat of Substitute Products
The threat of substitute products increases
when:
Buyers face few switching costs.
The substitute products price is lower.
Substitute products quality and performance are
equal to or greater than the existing product.
Differentiated industry products that are
valued by customers reduce this threat.
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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
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Low entry barriers
Interpreting Industry Analyses
UnattractiveIndustry
Suppliers and buyershave strong positions
Strong threats fromsubstitute products
Intense rivalry
among competitors Low p rof i t potent ia l
I t ti I d t A l
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Interpreting Industry Analyses
(contd)
AttractiveIndustry
High entry barriers
Suppliers and buyershave weak positions
Few threats fromsubstitute products
Moderate rivalry
among competitors High pro f i t po tent ial
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Strategies based on Competitive advantage:
1) Little Space Strategy:
1. Carve out on position hold it
2. Emhasise profits
3. Minimise investment
4. Caution on expansion
2) Specialized approach
Strategy:
1. Seek niche
2. Select Segments
3. Stay ahead of rivals4. Watch out for change
3) A pure Cost Game Strategy:
1. Use aggressive costing
2. Emphasise efficiency
3. Manage increase cash flow
4. Look for Diversification
4) Those with largecompetitions adv. Strategy
1. Pursue economics of scale2. Volume increase
3. Get the Customers of weakfirm4. Get new ways to complete
SMALL LARGE
M
ANY
F
EW
Differentw
aysacompetitiv
eAdvantageca
nbecreated
Size of the Competitive advantage which can be achieved.
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Generic Strategy Alternations
Expand Retrench Stabilise Combination
Products Add Drop Maintain
Markets Diversify Drop Maintain
Process Forward Decrease Maintain
Discuss: Why companies follow different routes of Strategic Alternative
C id i S V i i
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Considering Strategy Variations
Possible Strategy Variation
Expansion Stability Retrenchment Combination
1. Internal Penetrate existingMarkets, add newproduction, add
New Markets
ReorganizeProduction
Reduce Cost,assets, dropproduction,
Markets &Function
Subcontracting
2. External AcquisitionMergers
MaintainMarket Share
Divest,liquidation,
bankruptcy
Cross LicenseJV
3. Related Seek Synergyfrom NPD, NMkt,or Concentrate
ImproveProduction
Eliminate relateproductionMarket orFunction
C id i St t V i ti
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Considering Strategy Variations
Possible Strategy Variation
Expansion Stability Retrenchment Combination
4. Unrelated Conglomeratedirection inproduction
market orfunction
Eliminate relateproductionMarket or
Function
5. Horizontal AddCompetitiveProduct or
Markets
EliminateCompetitiveProduct or
Markets6. Vertical Add new
FunctionReduce Function
C id i St t V i ti
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Considering Strategy Variations
Possible Strategy Variation
Expansion Stability Retrenchment Combination
7. Active Innovative,Entrepreneuri-
-al moves8. Passive Initiator in
R&D, NewProduct
Internal E pansion thro gh markets & Prod cts
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Internal Expansion through markets & Products
Products
Penetrate existing
Market(s) with
existing Product(s)
Add New Markets
Add New ProductsAdd New Products &
New Markets
Current New
akesCurrent
New
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Three Joint Venture Strategies (Strategic Alliance)
1. Spider Web:A small firm establishes and servesJoint Ventures for its survival.
2. Go Together: Joint Ventures for a specific
project then quit.
3. Successive integration: From weakrelationship to final merger.
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Competition A Marketing Warfare1. Defensive Warfare:
2. Offensive Warfare:
3. Flanking Warfare:
4. Guerrilla Warfare: