Spring 2009

Industry size the major trends in the industry

the main competitive forces

competitors and their relative strengths

Appropriate strategy to be adapted to respond to changes in the industry

The sector you plan to operate in: annual sales in value for the last three years annual unit or volume sales for the last three

years trend in prices for the last three years a measure of capacity and possibly capacity

utilisation

Factors to consider (competitive forces): New entrants Buyers Suppliers Substitutes Rivalry among firms

The degree of concentration or the extent to which the industry is monopolistic has an important effect on the behaviour of competitors. For example, in an oligopolistic situation price wars should be avoided. While avoiding price fixing, competitors can send out pricing signals to move towards a new level of lower or higher prices.

industries are capital intensive; economies of scale are a key factor; access to resources is limited, for

example mining concessions, limited radio spectrum, patents

access to distribution is problematic; buyers’ switching costs are high.

Backward integration: A form of vertical integration that involves the purchase of suppliers in order to reduce dependency.

i.e. A good example would be if a bakery business bought a wheat farm in order to reduce the risk associated with the dependency on flour.

A business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products to achieve greater economies of scale or higher market share.

i.e. A brewery that purchases a chain of pubs can decide which beers are sold in the pubs, thereby exercising control over their competition.

current strategy or positioning; strengths; weaknesses; opportunities; threats; possible changes in strategy; reaction to changes in your business’s

strategy; financial strength; operational strength.

Chapter 8

Portfolio analysis is mostly relevant for existing, larger businesses with multiple products.

Matrix displays can be used to make strategic comparisons between your business and competitors

There is usually a relationship between volume and cost as a result of two factors:

the experience curve economies of scale effects

Economies of scale effects occur when production volumes increase. There are several reasons for scale effects:

Fixed and overhead costs can be distributed over a larger number of units.

Plant and machinery may operate more efficiently at larger volumes.

Increased bargaining power vis-à-vis suppliers. Increased specialisation. Potentially a higher utilisation of capacity.

The matrix relates market growth (the key variable in the product life cycle stage analysis) to relative market share. The objective of the analysis is to gain strategic insight into which products require investment, which should be divested and which are sources of cash.

Star: have a high relative market share in a rapidly growing market; they are in the introduction or growth stage of the product life

Problem child: creates a dilemma. The rapid market growth means investment is required. However, if investment is made only to keep up with market growth, the competitive position of the product will not be improved.

Dogs: are products with a low market share in a market that has reached maturity

Cash cows: are products with a high market share in a relatively mature market. No further investment in growth or product development is required, and the dominant market position means margins are likely to be high.

Analyses and takes into consideration many more factors.

To choose Market Growth Rate and Relative Market Share as the only two factors affecting our Product Portfolio is poor and therefore Directional Policy Matrix creates a better structure by considering many more factors

Refer to Chapter 8, page 76-78