Industry Strategies: Mature, Fragmented, Embryonic & Growth
INDUSTRIES AND STRATEGIES
MATURE INDUSTRIES
Where a few big companies dominate, and their actions affect each other. If one lowers prices, the others often do the same, interdependent. These industries grow slowly because the market is already full (saturated), and demand doesn’t increase much. Ex. Coca-Cola & Pepsi dominate, focus on keeping loyal customers & launching small improvements.
Evolution:
- Consolidation: Strong competition forces weaker companies out or leads to mergers.
- Strengthen Competition: Big companies work together indirectly to reduce competition and protect their market positions.
- Protect Profitability: Independent companies focus on strategies to keep the industry profitable.
Strategies
Product Proliferation (Restaurant Industry): Different food brands compete based on atmosphere (fast food vs. fine dining) and quality (average vs. gourmet). Crowded areas make it hard to succeed, but gaps (blue spaces) are opportunities for new brands.
Game Theory (Space Travel Pricing): Two firms, IST and USL, must choose high or low prices; profits depend on their own choice and the competitor’s choice.
Nash Equilibrium: Both firms stick to the pricing strategy where neither can gain more by changing their decision alone.
Strategies to Compete
- Deter New Competitors:
- Product Proliferation: Offer more products to cover all market needs, leaving no room for new competitors. Ex: A university adds more degrees to attract all types of students.
- Maintain Excess Capacity: Be ready to meet increased demand quickly to attract more customers. Ex: Build extra classrooms to handle more students.
- Price Cutting: Lower prices to make it harder for new players to compete. Ex: Airlines reduce ticket prices to block new entrants.
- Manage Rivalry Among Competitors:
- Price Signaling: Companies hint at price changes to avoid price wars. Ex: A company announces a planned price increase to influence competitors.
- Capacity Control: Limit production to keep prices high and avoid oversupply. Ex: Schools agree to limit student admissions to maintain exclusivity.
- Price Leadership: The dominant company sets the price, and others follow. Ex: Zara sets fashion prices, and competitors align.
- Nonprice Competition: Compete on quality, promotions, or services not prices. Ex: A restaurant focuses on better food and ambiance instead of cheaper meals.
FRAGMENTED INDUSTRIES
Industries have many small or medium-sized businesses with no single dominant company. Ex: Restaurants, barber shops, or local boutiques.
Reasons
- Low Barriers to Entry: It’s easy to start a business because you don’t need large investments. Ex: Anyone can open a small café without much money.
- No Economies of Scale: Big companies don’t have a major cost advantage, so small businesses can compete. Ex: A local bakery can compete with large chains because mass production isn’t needed.
- Specialized Customer Needs: Customers want unique or personalized products, so small businesses thrive. Ex: A tailor-made suit shop.
- Diseconomies of Scale: Growing too big makes business less efficient. Ex: Managing multiple outlets can increase costs and reduce flexibility.
Strategies
- Chaining: Open multiple locations to lower costs and increase market presence, it’s a chain. Ex: Starbucks expanding with consistent operations.
- Franchising: Grow quickly by letting others use your business model and brand. Ex: McDonald’s lets local owners operate their restaurants.
- Horizontal Merger: Combine with similar companies to grow/reduce competition. Ex: Two small coffee chains merge to create a larger brand.
- IT and Internet: Use tech to create new business models and improve efficiency. Ex: Food delivery apps help local restaurants reach more customers.
EMBRYONIC AND GROWTH INDUSTRIES
New and rapidly growing markets. Ex. Smartphones during their early popularity boom. –> implications
Strategies
- Say the market demand: Adjust strategy as the market grows.
- Understand Customer Groups:
- Innovators (2.5%): Like trying new things, take risks.
- Early Adopters (13.5%): Follow innovators but want proof the product works.
- Early Majority (34%): Want proven, reliable products.
- Late Majority (34%): Cautious, adopt only when products are common and affordable.
- Cross the chasm: It is the gap between early adopters and the majority. Cross by offering lower prices, show clear benefits, and build trust.
- Understand factors that affect market growth: Make products reliable, affordable, and easy to use. Add complementary products and target the right customers with tailored marketing.
Reasons for Slow Market Growth:
- Low Initial Quality: Early products may not perform well.
- Customer Confusion: People may not understand the product’s purpose or benefits.
- Weak Distribution: Limited availability in the market.
- Missing Accessories: No related products to enhance value.
- Expensive Production: High costs make products less affordable.
When the Mass Market Starts:
Technology makes products easier to use and more valuable. Complementary products (e.g., phone cases for smartphones) are developed. Companies lower production costs, reducing prices for customers.