External analysis overview
Industry Evolution and Life-Cycle
Internal Analysis Overview
Business Strategies
Corporate Strategies
100
According to Porter's 5 Forces, when suppliers to an industry are highly concentrated while the firms in the industry are fragmented, supplier power tends to be high. True or False - and WHY?
True. When suppliers are highly concentrated (few suppliers) serving a fragmented industry (many small buyers), it creates a fundamental asymmetry in bargaining power. Think of it like a few wholesalers selling to thousands of small retail shops - the dynamics heavily favor the suppliers.
Key Mechanisms Behind High Supplier Power
Lack of alternatives for buyers: With only a few suppliers available, each individual buyer has limited options for sourcing. If a buyer is unhappy with terms or prices, they can't easily switch to another supplier because there aren't many alternatives. The suppliers know this and can leverage it.
Inability to play suppliers against each other: When you have many suppliers, buyers can create competition among them, driving better terms. But with concentrated suppliers who often have tacit understanding of market dynamics, this competitive pressure diminishes significantly.
No individual buyer has leverage: Each fragmented buyer represents only a tiny fraction of a supplier's total sales. If one small buyer threatens to leave, the supplier can afford to let them go. Contrast this with a situation where a buyer represents 30% of a supplier's revenue - that buyer has real negotiating power.
Suppliers can dictate terms: Concentrated suppliers can more easily coordinate (formally or informally) on pricing and terms. They can implement industry-wide price increases, knowing that buyers have nowhere else to turn. They can also impose unfavorable payment terms, minimum order quantities, or other conditions.
High switching costs become more problematic: Even moderate switching costs become nearly insurmountable when alternatives are scarce. Buyers might need to accept poor terms simply because the cost and difficulty of finding and qualifying one of the few alternative suppliers is too high.
100
Meta’s success with its Ray-Ban smart glasses is drawing in competitors such as Apple, Google, and Amazon, which all plan on introducing their own versions of smart glasses. This increased entry by competitors suggests the industry is at what stage?
Introductory or Growth stage
100
A resource is costly to imitate if
1) It has physical uniqueness
2) Built on path dependency
3) Built on casual ambiguity
100
What is strategic positioning?
Strategic profile based on value creation and cost in a specific product market.
A valuable and unique position, which:
•Meets customer needs.
•Maximizes product value.
•Lowest possible product cost.
• Cost vs. Value Position -> always relative to competitors
100
Name the two types of transaction costs firms experience when engaging in market transactions and give ONE example of each
External transaction costs:
•Searching for contractors.
•Negotiating, monitoring, and enforcing contracts.
Internal transaction costs:
•Recruiting and retaining employees.
•Setting up a shop floor.
200
When analyzing substitutes in Porter's framework, this critical comparison between alternatives must be evaluated, not just whether alternatives exist or are growing
Price-performance trade off (or relative value proposition):
Simply stating that the industry is growing rapidly doesn't address whether the substitutes actually serve as effective substitutes from the customer's perspective.
You need to analyze whether substitutes offer comparable or better value relative to their price point compared to what the industry you are assessing offers. Without examining this price-performance relationship and the friction involved in switching (switching costs), your analysis fails to determine whether the substitutes under consideration truly threatens the industry or simply serves a different market need altogether. Growth in one segment doesn't automatically mean it's substituting for another - they could be expanding the overall market or serving different needs.
200
Heineken acquired Lagunitas back in 2015 (full acquisition happened in 2017) to learn innovative ways of making beer and cut costs of production of their IPA brands. Using the make-buy-ally framework, Craft brewers such as Heineken have begun to focus on reducing costs through economies of scale by:
Acquiring competing breweries (BUY)
200
List two tangible and two intangible resources and indicate which resources are generally more valuable.
200
Sephora’s competitor Ulta Beauty announced in November 2020 that it plans to open more than 100 shops inside Target Corp. stores by 2021 and sell its products on the discount chain’s website. Sephora has operated shops inside hundreds of J.C. Penney stores as part of a deal dating to 2006. Sephora has also installed shops in Kohl’s Corp stores. This suggests that Ulta Beauty’s differentiation move will result in:
Competitive Parity
200
Nike took a big step toward sustainability when it bought a research lab specializing in new materials. At first, the lab team was driven to find new materials as quickly as possible, which sometimes meant rushing things through without fully testing them. This approach didn’t always align with Nike’s long-term goals, especially their commitment to environmental impact and durability. To fix this, Nike changed the lab's incentives, encouraging scientists to focus more on developing materials that were sustainable and long-lasting. This shift helped the lab take a more thoughtful approach to innovation, ensuring that each new material was not only groundbreaking but also fit perfectly with Nike’s dedication to building a more sustainable future. This is an example of a firm overcoming which aspect of internal administrative costs of vertical integration:
Incentive problem
300
List the four types of industry competitive structures in terms of fragmentation/consolidation of competitors.
In an industry with numerous competitors of roughly equal size will firms experience lower competitive rivalry than an industry dominated by one or two large firms?
An industry with numerous competitors of roughly equal size typically experiences higher competitive rivalry, not lower. When many firms of similar size compete, none has dominant market power to enforce price discipline or deter aggressive competition. Each firm believes it can gain market share through competitive moves, leading to intense battles over customers through price cuts, marketing wars, and feature competition. In contrast, industries dominated by one or two large firms often see lower rivalry because the dominant players have more to lose from price wars, can more easily signal their intentions to avoid destructive competition, and smaller players often accept their subordinate position rather than directly challenging the leaders. Think of the fierce competition among roughly equal-sized airlines on popular routes versus the relative stability in markets dominated by a clear leader like Google in search engines.
300
How can companies win in the growth stage of the industry life cycle?
Design for or secure access to large scale manufacturing capability to obtain gains of scale and move in learning curve; access to and control channels of distribution to mass market; develop strong brand. This stage is crucial for firm survival – it is like crossing the chasm for technological developments. Wrong moves can bust your growth phase and lead to sudden decline and potential exit of the industry.
300
_______ and _________ are the critical assumptions of RBV. What are they again?
Resource Heterogeneity.
•A firm is a unique bundle of resources, capabilities and competencies.
•These bundles differ across firms.
Resource Immobility.
•Resources are “sticky,” and don’t move easily from firm to firm.
•Resources are difficult to replicate.
•Resources can last for a long time.
300
Define differentiation strategy. How can a bottled-water company differentiate itself from competitors?
Companies bet on unique features that increase value, so that consumers pay a higher price.
The focus of competition:
•Unique product features.
•Service.
•New product launches.
•Marketing and promotion.
Competitive advantage achieved when:
Value – Cost > Competitors.
Several competitors in the bottled-water industry provide a prime example of pursuing a successful differentiation strategy. As more and more consumers shift from carbonated soft drinks to healthier choices, the industry for bottled water is booming—growing about 10 percent per year. In the United States, the per person consumption of bottled water surpassed that of carbonated soft drinks for the first time in 2016. Such a fast-growing industry provides ample opportunity for differentiation. In particular, the industry is split into two broad segments depending on the sales price. Bottled water with a sticker price of $1.30 or less per 32 ounces (close to one liter) is considered low-end, while those with a higher price tag are seen as luxury items. For example, PepsiCo’s Aquafina and Coca-Cola’s Dasani are considered low-end products, selling purified tap water at low prices, often in bulk at big-box retailers such as Walmart. On the premium end, PepsiCo introduced Lifewtr with a splashy ad during Super Bowl LI (2017), while Jennifer Aniston markets Smartwater, Coca-Cola’s premium water.
300
When LVMH chooses to integrate forward into retail—owning its boutiques instead of relying on third-party retailers—it avoids diluted customer experience and maintains full control of pricing, merchandising, and service. This strategic choice most directly addresses what concept covered in vertical integration theory?
Vertical market failure.
Vertical market failure happens when relying on external partners—like retailers—leads to poor coordination, inconsistent service, or misaligned incentives. For a luxury brand like LVMH, these risks are too high. If third-party retailers discount products, provide poor service, or misrepresent the brand, it damages the overall brand image. By owning the stores (forward integration), LVMH avoids these problems and maintains full control of how its products are sold and experienced.
400
During the 2020 pandemic, airlines faced a deadly combination when PESTEL's Economic factors (collapsed travel demand) intersected with this Porter's Five Forces characteristic, forcing carriers to burn through cash reserves while planes sat idle, intensifying rivalry as they desperately offered $19 flights to cover any overhead they could.
The pandemic perfectly illustrated why high fixed costs drive competitive rivalry in Porter's model. Airlines still had to pay for aircraft leases, airport gates, maintenance facilities, and most staff regardless of whether planes flew. With travel demand crushed (PESTEL Economic factor), carriers faced a brutal reality: their massive fixed costs continued while revenue evaporated. This forced them into desperate price competition - any passenger paying more than the tiny variable cost (fuel, snacks) helped offset fixed expenses. Hence the $19 flights and fierce rivalry as airlines fought for the few remaining travelers. The pandemic's economic shock made this Porter's insight painfully visible: when fixed costs dominate your cost structure, you'll accept almost any price above variable cost rather than earn nothing, intensifying competition to destructive levels.
400
When Coca-Cola spends billions maintaining its red color trademark globally while its century-old secret formula remains essentially unchanged, it exemplifies this mature industry reality on how firms compete in such stages
Competing through marketing and distribution rather than innovation - defending position becomes more important than breakthrough development, and competitive advantage stems from brand equity rather than product superiority
400
P&G's ability to take a basic product like soap and transform it into 20+ distinct brands—from Ivory's 'pure' positioning to Olay's anti-aging promise to Safeguard's antibacterial protection—each commanding premium prices in their segments, demonstrates this core competency that allows one company to dominate multiple price points and consumer needs within the same category?
Brand management and differentiation capability
400
Select a company that successfully pursues a cost leadership strategy. Analyze TWO specific operational choices the company makes to achieve lower costs than competitors, and explain how each choice creates cost advantage while still delivering acceptable value to customers.
Company: Walmart
Supplier partnership systems (Retail Link): Sharing real-time sales data with suppliers reduces Walmart's inventory management costs while suppliers handle restocking
Scale-driven negotiations: Using massive volume to negotiate rock-bottom prices that smaller retailers can't match
Company: Southwest Airlines
Operational Choice 1: Single aircraft type (Boeing 737 only)
- Creates cost advantage through: simplified maintenance training, bulk purchasing power for parts, flexible crew scheduling, reduced inventory needs
- Maintains acceptable value by: still offering reliable point-to-point travel that customers want
Operational Choice 2: No-frills service model (no meals, no assigned seats)
- Creates cost advantage through: faster turnaround times (25 minutes vs. 45+), fewer flight attendants needed, eliminated catering logistics
- Maintains acceptable value by: focusing on what budget travelers truly value - low prices and on-time arrival
400
LVMH acquired Tiffany & Co. for $15.8 billion in 2021, despite already owning jewelry brands like Bulgari and Chaumet. Using the Build-Borrow-Buy framework, explain why LVMH chose "Buy" over "Build" (creating a new jewelry brand) or "Borrow" (partnering/licensing).
Why "Buy" in Luxury:
- Heritage is irreplaceable: Tiffany's 180-year history and "Breakfast at Tiffany's" cultural cachet cannot be manufactured
- Customer acquisition costs: Building loyalty in ultra-luxury segments costs 5-10x more than acquiring existing relationships
- Prime retail locations: Tiffany's Fifth Avenue flagship and 300+ prime locations would take decades to secure independently
500
In 2024-2025, this PESTEL factor became Disney's most significant strategic challenge when both Florida's government removed special tax districts and California's government increased theme park minimum wages to $20/hour, fundamentally altering decades-old operating assumptions at both Walt Disney World and Disneyland
Political Factor.
The case illustrates how political factors can dramatically impact business operations through multiple mechanisms simultaneously. Disney faced hostile political action in Florida (removal of the Reedy Creek special district that had given Disney quasi-governmental control since 1967) while also confronting mandated wage increases in California.
What makes this particularly interesting from a PESTEL perspective is that you might initially think this is an Economic factor (wage costs) or Legal factor (regulatory changes), but the root driver is Political - government actors making deliberate policy choices that reshape Disney's operating environment. The Florida situation stemmed from Disney's opposition to state legislation, while California's wage mandate reflected different political priorities around worker compensation.
This demonstrates how Political factors in PESTEL can cascade into economic impacts (higher costs, tax changes) and legal changes (new regulations), but the originating force is political will and government action.
Why it's Political:
- These weren't routine regulatory updates or court interpretations of existing law - they were politically motivated policy decisions by government actors
- Florida's action was explicitly retaliatory for Disney's political stance on state legislation (the "Don't Say Gay" bill), making it a political power play rather than normal legal evolution
- California's minimum wage increase was a political choice reflecting the state's policy priorities, not a legal requirement or judicial mandate
- Both represent governments using their power to actively reshape business conditions based on political agendas
When it would be Legal:
- If it were about Disney needing to comply with new safety regulations, environmental standards, or court rulings
- If these were administrative agency interpretations of existing statutes
- If the changes came through the judicial system rather than legislative/executive action
500
Meta is simultaneously developing various products, including the monocular display Hypernova, a follow-up binocular Hypernova 2 for 2027, Supernova 2 athletic glasses, and more advanced AR glasses codenamed Orion/Artemis. Why? (think about the tech itself and the industry life cycle)
Meta is engaging in technological experimentation, where companies test multiple design approaches before a dominant design emerges in the market
Design uncertainty - trying out many products until one sticks
500
Unilever successfully operates both Dove with its 'Real Beauty' campaign and Axe with its controversial masculine messaging, while also managing Ben & Jerry's social activism and Lipton's traditional values, without brand confusion—demonstrating this rare competency of maintaining distinct, even contradictory, brand personalities within one portfolio. P&G later successfully replicated a similar approach with Old Spice's humor and Gillette's social messaging. Unilever's brand portfolio management capability is a source of this type of competitive advantage.
Temporary competitive advantage
500
Identify and explain FOUR distinct cost drivers that firms can leverage to achieve success when implementing a cost leadership positioning. For each driver, provide a clear definition.
Cost of input factors:
•Raw materials, capital, labor, and IT services.
•Why does location matter?
Economies of scale:
•Decreases in cost per unit as output increases.
Learning-curve effects:
•Less time to produce output with experience.
Experience-curve effects:
•Improvements to technology and production processes.
500
New York-based Chobani, best known for its Greek-style strained yogurt. The company has expanded into oat milk, coffee creamer and drinkable yogurt in recent years, drawing in a broader range of customers. As a result, Chobani generated $2.53 billion in net sales in 2023, up 12% from a year earlier. This type of diversification is driven by:
Potential of sharing resources, technologies and activities