WPC 480- CHAPTER 3 EXTERNAL ANALYSIS EXAM WITH 100% CORRECT ANSWERS

A firm's strategic position relates to its ability to create_____for customers while containing the______to do so. Value, cost A group of companies that deal with more or less the same set of suppliers and buyers comprise____ An industry Michael Porter developed the five forces model to help firms do what? 1) Determine the profit potential of different industries 2) Gain & Sustain a competitive advantage T or F? According to the five forces model, competition involves not only creating economic value but also capturing a significant share of the economic value created? TRUE The stronger the five forces, what happens to the industry's potential profit? Lowers When a new firm enters an industry, what happens? 1) Industry profit potential declines 2) incumbent firms lower prices 3) Incumbent firms spend more to satisfy customers Entry barriers Obstacles that determine how easily a firm can enter an industry Economies of scale Cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, etc. Network Effect The positive effect that one user of a product or service has on the value of that produce or service for other users If a business considers changing vendors, but doing so would require that business to alter product specifications, retrain employees, and modify exisiting processes, we would say the business faces significant what? Switching costs Examples of commonly encountered capital requirements 1) Managing a production process 2) Paying for start-up losses 3) Setting up production facilities Advantages based on brand loyalty, proprietary tech, preferential access to raw materials, and favorable geo locations are examples of what? Advantages independent of size The power of _____ is the pressure they can put on the margins of producers in the industry by demanding a lower price or higher product quality Buyers Backward integration Example: Walmart producing private-label brands such as Equate health and beauty items and Parent's choice baby products Threat of Subsitutes Idea that products or services available from outside the given industry will come close to meeting the needs of current customers Rivarly Intensity with which companies in an industry jockey for market share and profitability Important factors in determining the intensity of rivalry among existing competitors 1) Exit barriers 2) Industry growth 3) Competitive industry structure Monopolistically competitive industry 1) obstacles to entry 2) Differentiated product 3) Ability to raise prices for differentiated products Near monopoly Occurs when a firm has accured significant market power and is changing the industry structure in its favor Price discounts, frequent new product releases with minor modifications, and intense promotional campaigns are all tactics indicative of an industry with____growth Slow or negative