EEE 457 MIDTERM EXAM REVIEW
QUESTIONS AND ANSWERS
What does economists perfectly competitive industry look like - Answer-jockeying for
position is unbridled and entry to the industry is easy
BUT this kind of structure offers the worst prospect for long term profitability
What does the knowledge of porters five forces give a company - Answer--highlight
critical strengths + weaknesses of the company
-animate the positioning of the company in its industry
-clarify the areas where strategic changes may yield the greatest payoff
-highlight the places where industry trends promise to hold the greatest significance as
either opportunities or threats
What is the greatest importance in strategy formulation according to porter - Answer-the
strongest competitive force or forces which determine profitability
ex: even a firm with strong position will earn low returns if it faces a superior or lower
cost substitute
What are the barriers of entry - Answer--economies of scale
-product differentiation
-capital requirements
-cost disadvantages independent of size
-access to distribution channels
-government policy
where can most of the sources of buyer power be attributed to - Answer-consumers as
a group as well as to industrial and commercial buyers
what are common competitive actions within industry - Answer--advertising
-price discounting
-product innovations
-service improvements
what are some indicators of industry rivalry - Answer-- number of incumbents- many
similar sized companies
-maturity of the industry
-switching costs
-product differentiation- commodity like vs. diverse product lines
,so overall: numbers of competitors, quality differences, other differences, switching
costs, customer loyalty
in addition to current industry rivals what should you also consider - Answer-the threat
of potential rivals entering the industry
from slides- what are the threat of entry determinants - Answer--regulatory barriers
-economies of scale
-access to distribution channels
contestability - Answer-ease of which firms can enter and leave the market entry/ "low
rivalry" industries disciplined by potential entrants
when is the threat of substitutes high - Answer-if they offer highly efficient low cost
solution to the customer's problem
what type of view do we take of substitutes - Answer-a broad view- ex: accounting
software vs the pencil
Supplier power as defined by the slides - Answer-refers to the pressure suppliers can
exert on business by
-raising prices
-lowering quality
-reducing availability of their products
what is supplier power really based on - Answer-competitiveness of supplier industry
(number of suppliers, size of the suppliers, uniqueness of service), availability of
substitute inputs etc, switching costs and your ability to substitute
what should you consider when trying to mitigate supplier power - Answer-partnership
strategies "value proposition" to the supplier
what type of industry leads to higher buyer power - Answer-price sensitive industries
what are the determinants of buyer power - Answer--few large volume buyers (extreme
case monopsony)
-commodity like products (aka the product is not differentiated enough)
-buyer has multiple options, low opportunity cost/switching costs
so as a synopsis: number of customers, size of each other, difference between
competitors, price sensitivity, ability to substitute and switching posts determines buyer
power
what determines the threat of substitute - Answer-substitute performance and switching
cost
, what determines the threat of new entry - Answer--time and cost of energy
-specialist knowledge
-economies of scale
-cost advantages
-technology protection
-barriers of entry
what are sources of industry advantage you may exploit in order to build higher barriers
of entry which in turn will decrease the threat of new entrants into your industry -
Answer--supply side economies of scale
-demand side benefits of scale
-capital requirements needed
-switching costs for buyer
-access to distribution channels
-incumbency
-government regulations
what types of industry trends would you explore wit NAICS level data - Answer--trends-
how fast is this industry growing?
-investment and technology
-dynamism- are there other major competitors that dominate? are there successful
young firms
-threats
-benchmarks
what are the six types of adjacencies - Answer-geography, customer segment, product
line, distribution, value chain expansion, "white space"
what is the purpose of the market analysis section of the bp - Answer-to earn credibility
for your idea by establishing customer validation- it shows that you meet a real need in
a well defined customer segment
what are the 7 ingredients in market analysis - Answer--market definition and customer
overview
-market dynamics (size and trends)
-buyer behavior
-market segmentation and targeting
-competition your advantage
-estimated market share and sales
-market future
what is the 80/20 rule - Answer-80% of sales come from 20% of customers
what are some questions to consider when looking at buyer behavior - Answer-do buyer
behaviors vary across segments: over time? seasonally?
QUESTIONS AND ANSWERS
What does economists perfectly competitive industry look like - Answer-jockeying for
position is unbridled and entry to the industry is easy
BUT this kind of structure offers the worst prospect for long term profitability
What does the knowledge of porters five forces give a company - Answer--highlight
critical strengths + weaknesses of the company
-animate the positioning of the company in its industry
-clarify the areas where strategic changes may yield the greatest payoff
-highlight the places where industry trends promise to hold the greatest significance as
either opportunities or threats
What is the greatest importance in strategy formulation according to porter - Answer-the
strongest competitive force or forces which determine profitability
ex: even a firm with strong position will earn low returns if it faces a superior or lower
cost substitute
What are the barriers of entry - Answer--economies of scale
-product differentiation
-capital requirements
-cost disadvantages independent of size
-access to distribution channels
-government policy
where can most of the sources of buyer power be attributed to - Answer-consumers as
a group as well as to industrial and commercial buyers
what are common competitive actions within industry - Answer--advertising
-price discounting
-product innovations
-service improvements
what are some indicators of industry rivalry - Answer-- number of incumbents- many
similar sized companies
-maturity of the industry
-switching costs
-product differentiation- commodity like vs. diverse product lines
,so overall: numbers of competitors, quality differences, other differences, switching
costs, customer loyalty
in addition to current industry rivals what should you also consider - Answer-the threat
of potential rivals entering the industry
from slides- what are the threat of entry determinants - Answer--regulatory barriers
-economies of scale
-access to distribution channels
contestability - Answer-ease of which firms can enter and leave the market entry/ "low
rivalry" industries disciplined by potential entrants
when is the threat of substitutes high - Answer-if they offer highly efficient low cost
solution to the customer's problem
what type of view do we take of substitutes - Answer-a broad view- ex: accounting
software vs the pencil
Supplier power as defined by the slides - Answer-refers to the pressure suppliers can
exert on business by
-raising prices
-lowering quality
-reducing availability of their products
what is supplier power really based on - Answer-competitiveness of supplier industry
(number of suppliers, size of the suppliers, uniqueness of service), availability of
substitute inputs etc, switching costs and your ability to substitute
what should you consider when trying to mitigate supplier power - Answer-partnership
strategies "value proposition" to the supplier
what type of industry leads to higher buyer power - Answer-price sensitive industries
what are the determinants of buyer power - Answer--few large volume buyers (extreme
case monopsony)
-commodity like products (aka the product is not differentiated enough)
-buyer has multiple options, low opportunity cost/switching costs
so as a synopsis: number of customers, size of each other, difference between
competitors, price sensitivity, ability to substitute and switching posts determines buyer
power
what determines the threat of substitute - Answer-substitute performance and switching
cost
, what determines the threat of new entry - Answer--time and cost of energy
-specialist knowledge
-economies of scale
-cost advantages
-technology protection
-barriers of entry
what are sources of industry advantage you may exploit in order to build higher barriers
of entry which in turn will decrease the threat of new entrants into your industry -
Answer--supply side economies of scale
-demand side benefits of scale
-capital requirements needed
-switching costs for buyer
-access to distribution channels
-incumbency
-government regulations
what types of industry trends would you explore wit NAICS level data - Answer--trends-
how fast is this industry growing?
-investment and technology
-dynamism- are there other major competitors that dominate? are there successful
young firms
-threats
-benchmarks
what are the six types of adjacencies - Answer-geography, customer segment, product
line, distribution, value chain expansion, "white space"
what is the purpose of the market analysis section of the bp - Answer-to earn credibility
for your idea by establishing customer validation- it shows that you meet a real need in
a well defined customer segment
what are the 7 ingredients in market analysis - Answer--market definition and customer
overview
-market dynamics (size and trends)
-buyer behavior
-market segmentation and targeting
-competition your advantage
-estimated market share and sales
-market future
what is the 80/20 rule - Answer-80% of sales come from 20% of customers
what are some questions to consider when looking at buyer behavior - Answer-do buyer
behaviors vary across segments: over time? seasonally?
