the strategically relevant factors outside a company's industry boundaries—economic conditions, political factors, socio-cultural forces, technological factors, environmental factors, and legal/regulatory conditions.
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principal components of strategic significance in the PESTEL analysis
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A. Political factors including the extent to which government intervenes in the economy
B. Economic conditions that include the general economic climate and specific factors such as interest rates, inflation rate, and unemployment rate, as well as conditions in the stock and bond markets that can affect consumer confidence
C. Socio-cultural forces including societal values, attitudes, cultural factors, and lifestyles that impact business
D. Technological factors includes the pace of change and technical developments that have the potential for impacting society
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major questions to ask in thinking strategically about industry and competitive conditions in a given industry
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-What strategic moves are rivals likely to make next?
-What are the industry's key factors for future competitive success?
-Is the outlook for the industry conducive to providing attractive profitability?
-What are the driving forces in the industry, and what impact will these changes have on competitive intensity and industry profitability?
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Thinking strategically about the industry and competitive environment involves in-depth analysis and evaluation of such consideration as
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the market positions of industry rivals and their relative strength, and the competitive forces rivals are facing and what impact they will have on competitive intensity and industry profitability.
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The most powerful and widely used tool for diagnosing the principle competitive pressures in a market is the
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Five Forces Model
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The competitive pressures on companies within an industry comes from those:
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-associated with the market maneuvering and jockeying for buyer patronage that goes on among rival firms in the industry.
-companies in other industries attempting to win buyers over to their substitute products.
-associated with the threat of new entrants into the marketplace.
-associated with the bargaining power of suppliers and customers.
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The nature and strength of the competitive forces that prevail in an industry is generally a joint product of
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-competition from rival sellers.
-competition from potential new entrants.
-competition from producers of substitute products.
-competitive pressures stemming from the bargaining power of both suppliers and buyers.
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The most powerful of the five competitive forces is USUALLY
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the competitive pressures associated with the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry.
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What makes the marketplace a competitive battlefield is
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the constant rivalry of firms to strengthen their standing with buyers and win a competitive edge over rivals.
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Market maneuvering among industry rivals
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is ongoing and dynamic, with moves and countermoves of rivals producing a continually evolving competitive landscape that delivers winners and losers.
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Rivalry increases
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when buyer demand is growing fast or increasing.
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Factors that cause the rivalry among competing sellers to be weaker include
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rapid growth in buyer demand and high buyer switching costs.
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In analyzing the strength of competition among rival firms, an important consideration is
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the diversity of competitors in terms of long-term direction objectives, strategies, and countries of origin.
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Potential entrants are more likely to be deterred from actually entering an industry when
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incumbent firms are willing and able to be aggressive in defending their market positions against entry.
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The competitive threat that outsiders will enter a market is weaker when
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financially strong incumbents send strong signals that they will launch strategic initiatives to combat the entry of newcomers.
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Competitive pressures stemming from the threat of entry are weaker when
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the industry outlook is risky or uncertain
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good examples of substitutes product that triggers stronger competitive pressures?
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-A salad as a substitute for French fries
-Wireless phones as a substitute for wired telephones
-Snowboards as a substitute for snow skis
-Video-on-demand services from a cable TV company as a substitute for going to the movies
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Just how strong the competitive pressures are from substitute products depends on
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whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes.
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Whether supplier-seller relationships in an industry represent a strong or weak source of competitive pressure is a function of
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whether demand for supplier products is high and they are in short supply.
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factors causing supplier bargaining power to be stronger
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54. Which one of the following is NOT a factor in causing supplier bargaining power to be stronger?
-The products/services needed from suppliers are in short supply.
-Industry members can't integrate backward and self-supply themselves.
-The item being supplied significantly enhances the quality or performance of the products of industry members.
-Suppliers are not dependent on the industry for a large portion of their revenues.
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When an industry member is a major customer of the supplier, and the relationship (partnership) is unusually effective and mutually advantageous
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there is a strong likelihood such partnerships will put increased competitive pressure on those industry members who lack productive collaborative relationships with their suppliers.
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The higher the switching costs for industry members, the more it can
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limit supplier bargaining power.
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Buyer bargaining power is stronger when
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the industry's products are standardized or undifferentiated.
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Collaborative relationships between particular sellers and buyers in an industry can represent a source of strong competitive pressure when
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sales are made to buyer groups with either strong bargaining power or high sensitivity.
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Competitive pressures stemming from buyer bargaining power tend to be weaker when:
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the costs incurred by buyers in switching to competing brands or to substitute products are relatively high.
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Which of the following conditions acts to weaken buyer bargaining power?
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When buyers are unlikely to integrate backward into the business of sellers
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Buyers are in position to exert strong bargaining power in dealing with sellers when:
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Buyers are price-sensitive due to the product representing a significant fraction of their purchases.
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The following factors are relevant considerations in judging whether buyer bargaining power is relatively strong or relatively weak
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-Whether certain customers offer sellers important market exposure or prestige
-Whether customers are relatively well-informed about sellers' products, prices, and costs
-Whether sellers' products are highly differentiated, making it troublesome or costly for buyers to switch to competing brands or to substitute products
-Whether sellers pose little threat of forward integration into the product market of their customers and whether buyers pose a major threat to integrate backward into the product market of sellers
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Not all buyers of an industry's product have equal degrees of bargaining power with sellers, because:
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some sellers may be less sensitive than others to price, quality, or service differences.
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A competitive environment where there is weak to moderate rivalry among sellers, high entry barriers, weak competition from substitute products, and little bargaining leverage on the part of both suppliers and customers:
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is conducive to industry members earning attractive profits.
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A competitive environment where there is strong rivalry among sellers, low entry barriers, strong competition from substitute products, and considerable bargaining leverage on the part of both suppliers and customers:
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is competitively unattractive from the standpoint of earning good profits.
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As a rule, the collective impact of competitive pressures associated with the five competitive forces:
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determines the extent of the competitive pressure on industry profitability.
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A company's strategy is increasingly effective the more it can match the company strategy to competitive conditions, so the firm can:
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shift the competitive battle in favor of the firm by altering the underlying factors driving the five forces.
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The "driving forces" in an industry:
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are major underlying causes of changing industry and competitive conditions and have the biggest influences in reshaping the industry landscape and altering competitive conditions.
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Industry conditions change:
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because important forces are enticing or pressuring certain industry participants (competitors, customers, suppliers) to alter their actions in important ways.
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The task of driving forces analysis is to:
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identify the driving forces, assess whether their impact will make the industry more or less attractive, and determine what strategy changes are needed to prepare for the impacts of the driving forces.
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Which of the following is NOT generally a "driving force" capable of producing fundamental changes in industry and competitive conditions?
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Movement in the economy and in interest rates
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Which of the following are most UNLIKELY to qualify as driving forces?
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Increasing efforts to collaborate with suppliers via strategic alliances and partnerships, escalating risk levels and normalization of cost and efficiency in the industry
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Which of the following do NOT qualify as potential driving forces capable of inducing fundamental changes in industry and competitive conditions?
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Changes in the economic power and bargaining leverage of customers and suppliers, growing supplier-seller collaboration, and growing buyer-seller collaboration
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Which of the following is MOST likely to qualify as a driving force?
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Successful introduction of innovative new products or new ways to market products
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Which one of the following is NOT a common type of driving force?
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Increasing efforts to collaborate closely with suppliers
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Increasing globalization of the industry can be a driving force because:
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companies need to spread their operating reach into more and more country markets to meet consumer demand and take advantage of available operating activities.
the collective impact of the driving forces will act to increase/decrease market demand, increase/decrease competition, and raise/lower industry profitability in the years ahead.
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Evaluating the industry's driving forces, as a whole, requires understanding their influence on the attractiveness of industry environment and:
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generally are defined in ways that will strengthen or weaken market demand, competition, and industry profitability in future years.
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In analyzing driving forces, the strategist's role is to
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identify the driving forces and evaluate their impact on (1) demand for the industry's product, (2) the intensity of competition, and (3) industry profitability.
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Which one of the following is NOT an integral part of driving forces analysis?
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Determining whether forces are acting to cause industry rivals to shift to a different strategic group
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The real payoff of driving forces is to help managers understand:
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what strategy changes are needed to prepare for the impacts of the driving forces.
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Driving forces analysis:
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has practical value and is basic to the task of thinking strategically about where the industry is headed and how to prepare for the changes ahead.
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What is the best technique for revealing the different market or competitive position that rival firms occupy in the industry?
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Strategic group mapping
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A strategic group:
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is a cluster of industry members with similar competitive approaches and market positions in the market.
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An industry contains one strategic group when all sellers:
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pursue essentially identical strategies and have similar market positions.
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Strategic group mapping is a visual technique for displaying:
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the different market or competitive positions that rival firms occupy in an industry and for identifying each rival's closest competitors.
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Which one of the following pairs of variables is LEAST likely to be useful in drawing a strategic group map?
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Level of profitability and size of market share
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The following pairs of variables are likely to be useful in drawing a strategic group map
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-Geographic market scope and degree of vertical integration
-Brand name reputation and distribution channel emphasis
-Product quality and product-line breadth
-Price/perceived quality and image range and the extent of buyer appeal
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The concept of strategic groups is relevant to industry and competitive analysis because:
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strategic group maps help identify how each competing firm is positioned and the relationship to their closest competitors.
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In mapping strategic groups:
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the best variables to use as axes for the map are those that identify the competitive characteristics that delineate strategic approaches used in the industry.
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Which of the following is NOT an appropriate guideline for developing a strategic group map for a given industry?
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The variables chosen as axes for the map should be highly correlated.
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With the aid of a strategic group map, one can:
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reveal which companies are close competitors and which are distant rivals, and that not all positions on the map are equally attractive.
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One of the things that can be gleaned from a strategic group map of industry rivals is:
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that some strategic groups are more favorably positioned than others because they confront weaker competitive forces and/or because they are more favorably impacted by industry driving forces.
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Strategic Group mapping analysis does not entail drawing conclusions about:
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where on the map is the easiest position to shift from to a more favorably situated position.
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The payoff of good scouting reports on rivals is an improved ability to:
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anticipate what moves rivals are likely to make next, thereby providing a valuable assist in outmaneuvering them in the marketplace.
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Having good competitive intelligence about rivals' strategies and moves to improve their situation is important because:
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it allows a company to anticipate what moves rivals are likely to make next and to craft its own strategic moves with some confidence about what market maneuvers to expect from its rivals.
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Good competitive intelligence about the strategic direction and likely moves of key competitors allows a company to determine:
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A. which competitor has the best strategy and which competitors have flawed or weak strategies.
B. which rivals are poised to gain market share and which seem destined to lose market share.
C. which rivals are likely to rank among the industry leaders on the road ahead.
D. which rivals are likely to initiate fresh strategic moves and why.
E. ALL OF THESE (CORRECT)
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To succeed in predicting the next strategic moves and countermoves of close or key rivals, it is useful to consider such indicators as:
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a rival's current strategy, objectives, capabilities, and assumptions about itself and the industry.
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A rival's strategic moves and countermoves are both:
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enabled and constrained by the set of capabilities they have at hand and thus serve as a strong signal of future strategic actions.
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Information regarding the four components of the framework for Competitor Analysis can NOT:
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gathered from rivals internal proprietary strategic information.
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The key success factors in an industry:
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are those competitive factors that most affect industry members' abilities to prosper in the marketplace—the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak one, and between profit and loss.
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An industry's key success factors can always be deduced by asking what factors:
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such as product attributes and service characteristics are crucial, and what resources and competitive capabilities are needed, and what shortcomings are evident to put a company at a competitive disadvantage.
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In identifying an industry's key success factors, strategists should:
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consider on what basis customers choose between competing brands, what resources and competitive capabilities firms need to be competitively successful, and what shortcomings are almost certain to put a company at a significant competitive disadvantage.
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Which of the following is NOT a question asked to deduce a marketing-related key success factor?
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What are the industry product R&D capabilities and expertise in product design?
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Which of the following can aid industries in identifying key success factors?
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Crucial product attributes and service characteristics
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Correctly diagnosing an industry's key success factors:
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raises a company's chances of crafting a sound strategy.
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Which of the following is particularly pertinent in evaluating whether an industry presents a sufficiently attractive business opportunity?
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The industry's growth potential, whether competition appears destined to become stronger or weaker, and whether the industry's overall profit prospects are above average, average, or below average
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In evaluating whether the industry and competitive environment presents sufficiently attractive prospects for both competitive success and attractive profits usually does NOT involve a consideration of which of the following factors?
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Whether the industry's product is strongly or weakly differentiated
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When evaluating whether an industry's environment presents a company with an above-average profitability and an attractive business opportunity, it primarily involves:
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determining the industry outlook for future profitability.
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