Quiz 2 Study Guide
Quiz 2 Study Guide BUSSPP - 0020
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This 9 page Study Guide was uploaded by Matt Leonard on Friday February 20, 2015. The Study Guide belongs to BUSSPP - 0020 at University of Pittsburgh taught by Robert Atkin in Spring2015. Since its upload, it has received 252 views. For similar materials see Managing in Complex Environments in Business Administration at University of Pittsburgh.
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Date Created: 02/20/15
MCE Quiz 2 Chapter 3 1 What is an industry a Can be Nested industries within industries i Sports Industry is Nested within the Entertainment Industry 1 Soccer Industry is Nested within the Sports Industry a English Premiere League is Nested within Soccer Industry ii Food Industry 1 Fast Food Industry Quick Service Restaurant b Evolve i New ones enter old ones exit c Official Classifications i SIC Standard Industrial Classification 1 Characterizes every industry by a 6 digit number a First two digits are general manufacturing b Second two digits are nested subset within industry 2 Assumes that industries can be nested within other industries ii NAICS North American Industrial Classification System 1 Meant to be more exible to adjust for newly evolving industries 2 IRS SEC Security Exchange Commission chose not to switch due to lack of funding provided by the government to rewrite computer code iii In Practice 1 Substitutability a Looking to buy X can get X at any of these places b Supply Side Approach seller perspective i Who all sells X Who will in the future c Demand Side Approach buyer perspective i The industry that meets your demands 1 Eg Have 7 and 30 minutes for lunch what are your options ii Short term demands 2 How to analyze an industry a Systems many b Porter 5 Forces Model i Empirical Observations 1 Some industries appear to be more profitable than others ii Seeks to understand why this is 1 Analyze industries iii Define industry being analyzed iv 5 Forces each have independent effects on profitability of the industry 1 Competition among rivals a Greater the competition among rivals the less attractive the industry is in terms of profitability 2 Customer Power a The more powerful the customers are relative to the industry the weaker the industry V 3 Supplier Power a If suppliers are powerful it is at the expense of the industry b The greater the supplier the less attractive is the industry in terms of profitability 4 Threat of Entrance a Greater the threat of entrance the less attractive the industry 5 Threat of Substitutes a Great the threat of substitutes the less attractive the industry Assumes costly entry and exit costs 1 Barriers to Entry leads to entry costs c Competition among rivals i ii iii iv A rival is a subset of competition 1 Competitor in the finished goods market not labor capital markets 2 Selling what you sell in the finished goods market Number and size 1 Market share a Revenue of specific company divided by total revenue of all companies in industry b Helps determine profitability of industry 2 What type of competition Aggregate Demand 1 Increasing generally leads to increasing profitability a Prices rises Aggregate Capacity 1 Upper Limit of Supply 2 Excess prices decrease 3 Just Right remains the same 4 Scarce prices increase Exit costs 1 Must pay remainder of lease costs a The bigger the company the more you pay i 500 chain restaurants all going out of business 500 leases that must be paid d Customer Power i ii iii Price sensitive Brands 1 Strong brand can offset price sensitivity a More likely to pay more for designer clothes than WalMart brand 2 Brand loyalty decreases customer power as they will be more likely to continue shopping for a particular brand Switching Costs decrease customer power 1 Cost for leaving 2 Can t cancel cell phone plan without paying a fee 3 Can t switch schools without losing money credits e Supplier Power i Key inputs 1 Eg Computers a CPU Intel 80 market share b O S Mac Unix Windows 85 market share c Software Suite Oracle SAP combined 80 market share 2 Suppliers of components have significant impact on price a If Intel raises prices then Toshiba has higher input costs ii Map f Threats of New Entrants i Downward pressure on price to compete ii Every existing player has a vested interest in keeping out new entrants 1 Build barriers to entry a Economies of scale i The larger the existing rivals the lower on average is the average cost of production b Intellectual property i Pay to license technology or patents c Strong brands g Threats of Substitute i Other products that can be used to replace a specific product but not the same product 1 Choosing to buy mustard over ketchup Key Points 1 The Relevant Environment to a firm is the customers of the firm suppliers to the firm rival firms and possible new entrants firms that are currently not producing the product but have the technology to do so 2 The attractiveness of an industry is related to the average profitability of the players in that industry Key Topics 1 Porter 5 Forces Model 2 Customer and Supplier Power 3 Industries Chapter 4 1 Differentiation a Escape Perfect Competition i Little or no control over price ii Expected profit in perfect competition 0 iii Differentiation iv Changing Business Model v Product Development b Basic Concept i New or modified product ii Product an offering to one party by another that can satisfy a need 1 Old simple way goods or services a Goods physical objects i A car house food etc b Services intangible actions i Haircut legal advice transportation etc 2 Modern many a People celebrities events Valentine s Day iii More Formal Utility 1 Form size color style characteristics 2 Place where is it sold available 3 Transaction a Which form of money can be used Cash credit etc b A bona fide transaction is a freely entered transaction by both parties that may produce benefit for both parties both parties assume it will provide benefit however not always i A check may bounce retailer is out of luck ii Faulty product does not live up to expectations customer is losing value 4 Time when is it available 5 Any change in one or more of these sufficient for the customer to observe the difference and believe it is real iv 4 Types of Differentiation 1 Novel 2 Modification of existing product quottweakedquot More typical a Product Refinement i Modify existing product then remove old version from market ii Stop making 2014 cars when 2015 cars come out 1 May continue selling old inventory iii Secondary Markets may continue selling old products 1 Antique car market b Product Extension i Modify existing product but keep old product in market ii New avors of soda Cherry Pepsi Oreo mint 1 Classic Pepsi and Oreo remains in production iii Geometric Expansion 1 Same product in different sizes Coke in 602 1602 2L etc colors clothing etc c SKU i Stock Keeping Unit ii Number of different products of a certain type in the market 1 Same sweater in 4 sizes and 5 colors 20 different sweaters 2 Differentiation as Investment a Investment the expenditure of some set of resources to build new resources i Money people space materials time knowledge b Risky i Cost before benefit pay before return ii Benefits may never occur iii Benefits may be too little too late c Apply to Differentiation i Investment Money 1 2 3 4 5 Current Revenue Retained Earnings Debt Sale of Equity Sale of Assets ii Underfunded due to constraints iii How to allocate money 1 9195 RampD Product Development a Built prototypes Market Research Customers Distribution Promotion Make buylease Problem should a company use own facilities to make a product lease facilities or buy it for resale a Make build own product need to buy equipment and resources Buy pay someone else to make it c Lease lease resources to make iv Criterion 1 2 3 Brands Branding Does it make economic sense to incur a risk Continue to incur expenses loses as investment continues a Expected Benefits vs Expected Costs b Time Value of Money c Opportunity Costs d Taxes e Capital Budgeting Decision a Concept definition how to distinguish your product from all other similar products i Identifier of a firm business or product ii Brand Name Name Ford iii Brand Mark Symbol Logo iv Formal Namequot legal name of the company Ford Motor Co b Intellectual Property i Protected form of copyright ii Exclusive use for some time 1 Piracy a Attempt to replicate brand product as real b Sold at real price 2 Knockoff a Known to be counterfeit not real purchased anyone b Sold cheap c Other than identifier i Emotionfeelings ii Knowledge belief iii Predisposition to act d Owner Coverage how broad the brand is i Manufacturer National Brand Manufacturer s Brand 1 Single Product Unique Brand a Prescription Drugs 2 Set of Products Family Brand a Food Products Kraft Nestle etc 3 Sold in retail stores a Heinz Ketchup sold in stores not a Heinz store ii Retailer Retail Brand Private Label Brand Store Brand 1 Single Product Unique Brand a Big Mac 2 Set of Products Family Brand a Apparel AE Under Armour Nike etc 3 Own retail store to sell products a American Eagle designs and sells own product 4 Proprietary Brand e Brand Equity i Economic value of a brand logo name 4 Product Lifecycle a Lifecycle i Introduction grow slowly 1 Monopolistic competition only product in market ii Growth spurt in growth 1 Competition begins to enter market second movers 2 Build barriers to entry a First Mover Advantages iii Mature level off 1 Shrinking opportunity for profit growth 2 Some competition drops out 3 Consolidation some companies acquire each othermerge a Leads to Oligopolies 4 Constant to slight decline in demand iv Decline sales decline b Detail i First Movers Advantages Barriers to Entry 1 2 3 Brand Intellectual Property Scale big enough that unit costs are cheaper to manufacture ii First Mover Disadvantages 1 2 3 High failure rates Convince consumers of value opportunity of new product service a Significant marketing expenditures Devise retail plan iii Allocation of money 1 9195 RampD Product Development a Built prototypes Market Research Customers Distribution Promotion Make buylease problem a Make build own product need to buy equipment and resources b Buy pay someone else to make it c Lease lease resources to make iv Second Movers 1 2 3 Many disadvantages of First Movers are advantages to Second Movers a Piggyback on marketing and retail strategies Fast Second Movers Slow Second Movers v Second Mover Strategies 1 2 3 c Channels Cloning a Copy existing product and sell at lower price Leapfrogging a Come up with new and improved version b Premium price Capacity a Similar to cloning b Copy but price according to brand c Ralph Lauren may copy apparel but sell it at a premium price because Ralph Lauren is a premium brand i Supply Channels an entire set of links from raw material suppliers to end users ii Marketing Channels the shorter set of links between potential sellers and buyers at any point in the supply chain 1 Communication Channels provide information about products and advertising Distribution Channels display and deliver product Selling Channels how transactions occur drivethru pay at register online etc d Marketing e f i ii iii Price ii iii Primary focus is customer the customer is always rightquot CRM Customer Relationship Marketing 1 May increase buyer participation in newly differentiated products 2 May increase number of early adopters of a new firm or product Can be done by third parties brokers and infrastructure providers and sellers Rising Price 1 If demand grows price rises 2 Scarce capacity as a result of rising demand leads to rising prices 3 Leapfrogging increases price Decreasing Price 1 Cloning decreases price 2 Capacity becomes less scarce when Second Movers enter the market Result 1 Upward trending price in a jagged way not linear a Price rises then decreases rises then decreases etc 2 Emergence of 23 standard models and 34 intermediate models 3 Standardization of Product a Base model and Premium Model are fairly similar i Eventually a product cannot be leapfrogged 1 Current smartphones are all fairly similar 4 Price Point a All Base Models and Premium Models are in same price bracket i Apple and Samsung phones both priced around 200 Product Lines i ii iii Product Line a group of similar goods and services 1 Product Extension extension of a current line a Coke 9 Cherry Coke Coke Zero Diet Coke etc b Old product remains on the market 2 Product Refinement a Improving a current produce and removal of old product from the market b Stop making iPhone 5 once iPhone 6 comes out Product Mix the set of all products that the firm offers for sale within a given industry 1 Width the number of product lines a May contain cereals yogurts snacks baked goods etc 2 Depth number of products within each line a If Cereal is a single product line Kellogg s has a large depth that includes Corn Flakes Fruit Loops Rice Krispies Corn Pops etc Marketing Mix 4 P squot overall set of objectives used to pursue a firm s goal 1 Product decisions about form utility product mix packaging branding etc 2 Price how to price a product 3 Promotion use of advertising sales promotions direct marketing etc 4 Place where and when to sell a product how to distribute it Key Topics 1 Differentiation 2 Investment 3 Marketing 4 First and Second Movers advantages and disadvantages 5 Brands 6 Product Lifecycle
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