Exam 5: Competitive Rivalry and Competitive Dynamics

Late movers are those firms that

Which of the following statements is FALSE?

Intensified rivalry within an industry results in decreased average profitability for the firms within it.

Ninety percent of Wm. Wrigley Company's total revenue comes from chewing gum. This is an example of

Case Scenario : The Pet Food Industry. The pet food industry is comprised primarily of six market segments: dry dog food, dry cat food, moist dog food, moist cat food, canned dog food, and canned cat food. Five large firms dominate the market and each has some market share in all segments, and the leading share in at least one segment. The largest firm participates solely in the pet food industry, while the next four firms are actually subsidiaries of some of the world's largest food and consumer products companies. Top management of these larger firms have made public statements that suggest they each see themselves as future leaders of the pet food industry. All five have acquired comparable skills in terms of manufacturing and marketing. Two small firms also participate in the industry, but these players are relatively weak and compete in just two of the six segments; the pet food industry is the only industry in which they operate. Inputs to the industry are basic commodities and there is no real threat of substitute products except across segments and price points. The industry is growing slowly, barely keeping up with the rate of inflation. Barriers to entry are enormous when pet food companies can gain scale economies in production coupled with aggressive marketing, though even then these coordinated actions may only yield average industry profitability. Any firm can increase its market share only to the extent that another firm's share is decreased. -(Refer to the above Case Scenario ) The pet food industry is best characterized as an example of

First movers are

Which industry can be LEAST described as a slow cycle market?

Firms operating in the same market, offering similar products and targeting similar customers are competitors.

Case Scenario : Plasco. Plasco is a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. Historically, Plasco has been the category killer for most of its products and has devoted tremendous resources to new product development on an ongoing basis - this research intensity has allowed the company to release, on average, a new product every day over the past five years. Despite its past strength and high brand awareness, Plasco's profitability has been eroded by dramatic increases in the cost of plastic resin, the primary input into its plastic products. Moreover, the retail channel has experienced rapid consolidation resulting in a shift in the balance of power from branded manufacturers like Plasco, to strong retailers like Wal-Mart, who in turn have been unwilling to help Plasco absorb the higher resin costs. Enhancing Wal-Mart's power is the fact that it can always turn to alternative high-volume sources of consumer plastic products like Sterlite. Further hampering Plasco's recovery is the emergence of feisty little foreign competitors like Zig Industries, a $250 million Israeli firm that has begun to take part of Plasco's market share in plastic toolboxes. Ironically, Plasco was the first company to offer plastic toolboxes some 20 years ago. This innovation changed the market dramatically and Plasco's first mover strategy rewarded it with a rapidly growing new segment and a dominant market position. Today, Plasco's toolboxes are viewed as rather boring, while Zig's products are ingeniously designed to catch the customer's eye in the aisle (better merchandising the product) and capture their interest (and pocketbook) with many new and novel features. Zig is also able to provide this new line of toolboxes at between 10% to 15% less than Plasco. -(Refer to the above Case Scenario ) Is the toolbox business a slow-, standard-, or fast-cycle business?

Quality begins at the bottom of the organization where employees must create values for quality that permeate the entire organization.

Large firms with significant slack resources (i.e., are able to launch a greater number of competitive actions) but who remain flexible and act like small firms (i.e., are able to launch a variety of actions) will be more successful against rivals.

"Competitive dynamics" indicates that firms and their strategic actions are independent.

Unlike fast-cycle markets, the struggle for market share in standard-cycle markets is moderate.

Case Scenario : The Pet Food Industry. The pet food industry is comprised primarily of six market segments: dry dog food, dry cat food, moist dog food, moist cat food, canned dog food, and canned cat food. Five large firms dominate the market and each has some market share in all segments, and the leading share in at least one segment. The largest firm participates solely in the pet food industry, while the next four firms are actually subsidiaries of some of the world's largest food and consumer products companies. Top management of these larger firms have made public statements that suggest they each see themselves as future leaders of the pet food industry. All five have acquired comparable skills in terms of manufacturing and marketing. Two small firms also participate in the industry, but these players are relatively weak and compete in just two of the six segments; the pet food industry is the only industry in which they operate. Inputs to the industry are basic commodities and there is no real threat of substitute products except across segments and price points. The industry is growing slowly, barely keeping up with the rate of inflation. Barriers to entry are enormous when pet food companies can gain scale economies in production coupled with aggressive marketing, though even then these coordinated actions may only yield average industry profitability. Any firm can increase its market share only to the extent that another firm's share is decreased. -(Refer to the above Case Scenario ) The pet food industry provides an example of

Competitive rivalry often increases during recessions and some selected businesses in particular industries experience heightened demand.

All of the following are examples of businesses discussed in the Chapter 5 Opening Case that have done well during recessionary times EXCEPT

Movie studios and theaters, and videogame developers and distributors are examples of businesses that do poorly during recessionary times.

Which of the following is an example of a tactical action?

Which pair of firms has the LEAST resource similarity?

Case Scenario : Romulac, Inc. Romulac Inc. (RI), a subsidiary of a large successful manufacturing conglomerate, supplies a key component in the assembly of residential cooling systems (air conditioning units, etc.). There has been tremendous consolidation in RI's industry, to the point where only five suppliers of this particular component account for nearly 90% of U.S. industry sales. Paralleling this trend, its customers - comprised of makers of branded residential air conditioning units like Carrier and Trane - have seen similar levels of consolidation in their own industry. Half of these firms produce all their components in-house, while the balance purchases them from specialized component manufacturers like RI. RI's business is extremely capital intensive, and their 40% share of the market allows them to also be the most profitable domestic player. Strong competitors exist in Europe and Asia. Although like RI, these foreign players' strongholds are their home regions, with negligible presence outside of the region. Some of the larger Asian manufacturers have signaled an interest in more aggressively pursuing the lucrative U.S. market. RI is presently considering a $400 million dollar investment in a new plant, which will create a component that is much quieter, more efficient, and is likely to satisfy future regulatory standards. While the core technology for the new component is very old, RI's engineering and design skills have allowed them to retain their low cost-advantage, even though the component will represent a significant improvement over products currently provided by its competition. -(Refer to the above Case Scenario ) As one of RI's direct competitors, how would you try to predict what it will do with regard to the new technology?