Dealing With Competition

chapter if 343

The result is Chronic overcapacity and depressed earnings for all. The airline industry has low entry harriers but high exit barriers, leaving all die companies Struggling during economic downturns.

Threat Of substitute products -A segnrcnl is unattractive when the re are actual orpotem tial subs Li lutes fur (he product. Substitutes plate a limit on prices and on profits. "I he company has to monitor price- trends closely, II' technology advances or com petition increases in ihc.se substitute industries, priccs and profits in the segment are likely to fall. Greyhound buses and Amtrak trains have seen profitability threatened by the rise of air travel.

4. Til rem of buyers' grouting bargain tug power -A segment is unatl raci ive i f huyc rs possess strong or growing bargaining power- 'l ire rise of retail giants such as Wal-Mart has led suiiie analysts to conclude lhat the potential profitability ofpackaged-gnods companies will become curtailed. Uuyers' bargaining power grows when they become more concentrated or organized, when the product represents a significant fraction of the buyers" costs, when the product is undifferentiated, when the buyers' switching costs arc tow tvhen buyers are price sensitive because of low profits, or when buyers can integrate upstream.To protect themselves, sellers might Select buyers who have (he least power to netotiate or switch suppliers. A better defense consists of developing superior offers that strong buyers cannot refuse.

5-. Threat of sop pi iers' growing bQ rgaiiring pot tier - A se!> 11 le nt i s t mat i rite t ive i f the Com ■ pany's suppliers are able to raise prices or reduce quantity supplied. Oil companies such as ExxonMobil. Shell, BP, and Chevron-Texaco are at the mercy of the amount of oil reserves and the actions of oil supplying tart els 3 ike OPHC. Suppliers tend to he pcuverftil when they are concentrated or organized, when there an? few substitutes, when the supplied product i.iitn important input, when the costs flf switching suppliers are high, and when the suppliers can integrate downstream, The best defenses are to build win win relations with suppliers or use multiple supply sources.

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