1d_Responding

1d_Responding - Responding to Buyers, Suppliers, and...

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Nile W. Hatch © 2002 – 2008 ManEc 387 Economics of Strategy Responding to Buyers, Suppliers, and Substitutes 1
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Nile Hatch © 1996 – 2008 Strategic Responses to Buyer, Supplier, and Substitute Power with Examples 1. Buyer power responses and examples 2. Supplier power responses and examples 3. Substitute threat responses and examples 2
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Nile Hatch © 1996 – 2008 Exploring Industry Structure Threat of Potential Entrants Customer Power & Preferences Rivalry between Competitors Threat of Substitutes 3 Bargaining Power of Suppliers 3
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Nile Hatch © 1996 – 2008 What can be done to neutralize bargaining power of buyers? 1. Differentiate product or service so that it uniquely responds to only certain buyer needs 2. Create demand for complementary goods that require your product or service as an exclusive input 3. Discriminate on price among buyers—charge different buyers a different price for your product 4. Narrow the options of the buyer through market consolidation or exclusive alliances 5. Find new types of buyers and/or alternative uses for your product 6. Create switching costs for your buyers 7. Price at or below marginal cost and produce large quantities so that your product Foods the market and attracts loyalty, dependence, and dominant market share; then restrict supply and raise price or add new revenue products or services (risky) 4
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Nile Hatch © 1996 – 2008 1. Differentiate Product • Recall from last session that consumer preferences vary • If a Frm can uniquely satisfy the preferences of some particular group, it creates a steeper demand curve and more ±exibility in its pricing • By differentiating, the Frm may, in effect, create a “monopoly” within some particular consumer segment 5
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Nile Hatch © 1996 – 2008 Example: Differentiate Product • “Big Bertha” Golf clubs • Wide hitting face and superb balance appeal to less proFcient golfers q p Demand for all golf clubs Demand for Big Bertha- style clubs 6
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Nile Hatch © 1996 – 2008 2. Create Demand for Complementary Goods Complementary goods are those that work together with other products or services to create joint value Example: Sign exclusive joint agreements with complementary product companies or create new goods outright and then help to stimulate demand for that good; or Make your good or service an exclusive input into the production of another good or service and create demand for that good 7
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Nile Hatch © 1996 – 2008 Example: Complementary Goods Strategy • Nutrasweet brand on diet colas helped to sell more cola and create demand for Nutrasweet • “Intel inside” campaign in which Intel’s brand is stamped on complementary goods, thus creating demand for those goods and selling more chips • NextelDirect – Motorola cell phone walkie-talkie features are valuable only in the presence of complementary direct connect services; sell more phones by creating demand for the walkie-talkie service; Sell the service by creating network- exclusive phones with Motorola 8
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This note was uploaded on 04/22/2011 for the course MANEC 387 taught by Professor Crawford,l during the Fall '08 term at BYU.

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1d_Responding - Responding to Buyers, Suppliers, and...

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