Economies of scale
Access to distribution channels
Cost disadvantages independent of scale
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
Barriers to Entry (cont’d)
Products at competitive prices
Availability of capital
One-time costs customers incur when they buy from a different supplier
Psychic costs of ending a relationship
Access to Distribution Channels
Stocking or shelf space
Cooperative advertising allowances
Barriers to Entry (cont’d)
Cost Disadvantages Independent of Scale
Proprietary product technology
Favorable access to raw materials
Licensing and permit requirements
Deregulation of industries
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 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 strategic actions
Extent of technological leadership