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SMMC G6 [BS-2] (PESTEL (Social (Demographic trends, values, culture,…

- - - - high fixed/storage costs
      - slow demand growth
      - low product differentiation
      - high over-capacity
      - low industry concentration
      - high exit barriers
    - - when competition is based on price
        
        price wars breakout
        
        rivalry becomes a lose-lose proposition for all firms in the industry
    - - industry concentration
        
        meaning
        
        the extent to which the sale of products or services in the industry is in the hands of a very small number of firms
        
        four-firm concentration ratio
        
        the combined market share of the top four-firms in the industry
        
        HHI (Hirschman Herfindahl Index)
        
        FORMULA: The sum of the squared percentage market shares of all firms in an industry.
        
        the maximum HHI is 10000
        
        there is a monopolist in the industry
        
        the minimum HHI is 0
        
        there is a very large number of very small firms in the industry
      - product differentiation
        
        meaning
        
        the heterogeneity among consumer preferences in an industry
        
        the more preference different sets of consumers have, the lower the extent of rivalry and price rivalry among firms are
        
        When these are high, firms are more likely to resist the temptation to lower price in order to grow revenue or market share
        
        It is very difficult for the firm to grab market share from others by lowering price.
        
        Most consumers have their own favorite brand and they're not willing to switch brand simply because it's a little cheaper.
      - low fixed/storage costs
        
        there is less pressure to sell these products right away by dropping price.
      - high demand growth
        
        allowing firms to grow sales without eating into each other's market share and decreasing the temptation for price competition
      - limited over-capacity
      - low exit barriers
  - - - can limit the profitability of the focal industry by effectively constraining the prices that industries can charge, especially if...
        
        more innovative or value providing
        
        e.g. Uber or Lyft to the taxicab industry
        
        improving quickly in cost/performance
        
        e.g. Tesla to the mainstream automobile industry
        
        better cost structure
        
        e.g. Airbnb to the hotel industry
        
        meets similar needs
      - consisting of product and services that consumers might want to buy instead of the industry's product or service.
  - - - Suppliers face few substitute products
      - Suppliers can forward-integrate
      - Suppliers are concentrated
      - The suppliers products are important for the focal industry
      - Suppliers products are differentiated or present high switching costs
  - - - buyers are concentrated
      - product is a large % of costs/income for buyer
      - product is not important for buyer quality or performance
      - Few switching costs for the buyer
      - Buyers can backward integrate
  - - - Natural entry barriers
        
        capital requirements
        
        large investment is risky and irreversible.
        
        cause difficulty in developing a cost-competitive production base
        
        putting new entrants at a disadvantage when producing or supplying the industry's product or service
        
        product differentiation
        
        customers are loyal to existing products and brand
        
        intangible product attributes and emotional attachment
        
        2.learning curve economies
        
        costs decline with total cumulative production over time
        
        e.g. aircraft, disk drives, LCD screens
        
        access to distribution channels
        
        shelf space may be limited
        
        logistics of distribution may be difficult
        
        cause difficulties in reaching or winning over customers and also building demand
        
        scale and scope economies
        
        scale economies
        
        costs decline with scale of production
        
        e.g. oil refining, semiconductors, steel, software
        
        scope economies
        
        costs decline when multiple products are made
        
        e.g. car models built on same platform, online retailing
        
        the others
        
        privileged access to raw materials or favorable location
        
        Government regulations make it costly to enter
        
        difficult-to-imitate technologies and processes
        
        cause difficulties in copying and reproducing
      - Expected Retaliation
        (Strategic entry barriers)
        
        when
        
        when industry has a reputation for retaliation or it has slow growth or high exit costs
        
        what to do
        
        responding to entrants with aggressive pricing, advertising, new products, etc.
        
        who
        
        the existing firms are well-resource and have idle excess capacity
        
        change how attractive the industry might look to potential entrants which would discourage them for entering
- - - - structural features of an industry will drive the behavior or the the conduct of firms and other actors in specific ways, and this conduct in turn will drive industry performance
    - - Industry concentration
      - Barriers to entry
      - Product differentiation
      - Number and size distribution of buyers and sellers
    - - Threat of New Entrants
      - Bargaining Power of Suppliers
      - Bargaining Power of Buyers
      - Threat of Substitutes
      - Rivalry
- - - - Drug purchasing decision is highly fragmented
      - Buyers are heavily dependent on these drugs
- - - - Focusing just on hard attributes and not enough on behavioral ones
      - Using one force to explain another
      - Simply describing the actors in each force, ignoring structural attributes
      - Stopping with the 5 forces, and not evaluating overall profitability
      - Not keeping track of actors in each force
      - Assessing profitability as an average of the 5 forces
      - Using too broad or too narrow an industry definition
      - Confusing short-run industry profits with long-run profitability
      - Not being clear about industry definition
      - Not examining dynamics or implications for managerial action