A.LOWES CASE ADVICE

A.LOWES CASE ADVICE - 1 SOME THINGS TO THINK ABOUT WHEN YOU...

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SOME THINGS TO THINK ABOUT WHEN YOU TRY TO APPLY THE STRATEGIC CONCEPTS TO CASES LIKE LOWE’S CASE: THE FIVE FORCES MODEL. How can we systematically analyze the industry environment? - five-force model which allows us to systematically assess the industry environment. The thrust of the model is that the relationships between these five forces and the incumbent firms determine the attractiveness of the industry environment, which in turn helps us make strategic decisions in terms of how to achieve organizational goals. 1. Threats of new entrants. New entrants bring new desire to gain market share. Prices can be bid down as a result, reducing profitability. As such, the new entrants may impose significant threats to incumbents. There are 5 major sources of entry barriers from the potential new entrants’ point of view. 1.Economics of scale. Economies of scale refer to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the number of units per period increases. SO IN LOWE’S INDUSTRY DO YOU HAVE TO HAVE BIG SCALE TO COMPETE? YES. 2.Capital requirements. For some industries such as airline and mining industries, the required capital to establish a new firm is significantly high. Accordingly, the level of required capital for entering to the industries creates the barriers to potential new entrants. Thus, the threat of new entrants is reduced as the level of required capital increases. AGAIN – YOU NEED BUILDING AND LOTS OF INVENTORY THAT IS HIGH CAPITAL REQUIREMENT FOR LOWE’S 3.Switching costs. Switching costs refers to the costs (monetary or psychological) associated with changing from one supplier to another from the buyer perspective. When the switching costs are minimal, customers can easily switch buying products from one firm to another. Thus, the threat of new entrants (the barrier of new entrants) increases (decreases) as the switching costs decreases. SO IF HOME DEPOT AND RON;AS HAS HIGH CUSTOMER LOYALTY THEN THAT IS BARRIER TO ENTRY FOR LOWE’S 2. Bargaining power of suppliers. When considering supplier power, our focus is on the firms, organizations, individuals that provide raw materials, technologies, or skills to
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A.LOWES CASE ADVICE - 1 SOME THINGS TO THINK ABOUT WHEN YOU...

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