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Chapter 4,5

BU481 Chapter Notes - Chapter 4,5: Cirque Du Soleil, Blue Ocean Strategy, Wildcat Strike Action


Department
Business
Course Code
BU481
Professor
Karin Schnarr
Chapter
4,5

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BU481 Chapter 4 & 5 Notes
Chapter 4:
Porter’s Five Forces Model
- The weaker these forces, which describe the key structural features of the industry, the
greater the opportunity for superior power, buyer power and threat of substitute
products
oEconomies of Scale:
Pose a barrier to entry by either forcing new entrants to come into the
industry at a larger scale with great risk or at a smaller scale with cost
disadvantages
oThreat of New Entrants
oProduct Differentiation
oCapital Requirements
oCost Disadvantages
oAccess to Distribution Channels
oGovernment Policy
- Summary:
oPorter argues that where there are high economies of scale, incumbents with a
differentiated product or service, large capital requirements to enter,
incumbents who have advantages other than size such as location or patents,
difficult to access distribution channels and prohibitive government policies, new
entrants will be deterred from the industry by these very high barriers to entry
- Suppliers:
oSuppliers are more powerful if their industry is dominated by a few companies
and are more concentrated than the industry to which they sell,
oif there are no other substitute products to be sold into the industry to which
they sell,
oif there are no other substitute products to be sold into the industry
oif the supplier’s product is an important input to the buyer’s business
oLarge switching costs
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- Buyers:
oBuyers are more powerful if they are concentrated or purchase in large volumes,
oif they have full information,
oif they face few switching costs
oif they earn low profits
- Substitute products
oProducts from outside the industry that can provide a similar package of benefits
or otherwise perform the same function as the main product or service in the
industry
- Intensity of Competitive Rivalry
oRivalry is affected by the interaction of other structural forces as well as through
the sheer number and nature of competitors in an industry
oNo growth industries and decline can turn into bitter market share battles for
the remaining pieces of the pie
- Summary:
o5 star industry:
low supplier power
low threat of entry
low buyer power
low threat of substitute products
low competitive rivalry
Value Chain
- the primary activities selected from the industry’s value chain that have been integrated
into the structure of an organization
- Bottling and distribution functions of the value chain are often contracted to 3rd parties,
which allows Coke and Pepsi to focus on the activities such as concentrate development
and marketing where they have significant strength
- Value chain will often separate marketing and sales since aside from vending machines,
capital is heavily invested in marketing
Cooperation and Competition: Game Theory
- 8 industry attributes that facilitate the development and maintenance of tacit collusion:
o1. Small number of firms enables monitoring
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o2. Product homogeneity focuses attention on price, which is more easily
monitored
o3. Cost homogeneity enables a common price structure and level of output
o4. Price leaders provide order and discipline to the market
o5. Industry social structure or recipe defines the standards of operating in the
industry
o6. High order frequency and small order size minimize the cost of losing an order
and incentive to compete
o7. Large inventories and order backlogs create buffers and reduce pressure to
compete
o8. Entry barriers as noted by Porter in his 5 Forces Model
- Prisoner’s dilemma is a simple exchange game between 2 individuals that is commonly
associated with game theory
oThere is incentive to turn the partner in, however, if both prisoners act in this
way, they will both suffer, hence the dilemma
- Continue cooperating:
o1. They can directly communicate with one another
o2. Cheating does not lead to large payoffs
o3. Cheating leads to costly sanctions
o4. Players are more interested in maximizing their payoffs than in beating the
payoffs of other players
Math for Strategists
- supply and demand curves
- competitor cost structure
- pricing
- value creation, capture and distribution
PEST
- impact supply, competition and demand
Scenario Planning
- recognizes the potential for a significant amount of variability in industry analysis
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