1 market saturation many markets are saturated

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1. Market saturation Many markets are saturated, especially in developed world. Increase in the number of products has made saturated markets fragment into even smaller units Company’s own product extension undermines its efforts for sustainable growth, taking them into tiny market niches while increasing marketing and distribution costs 2. Undifferentiation Innovation has slowed in many traditional industries, resulting in products that are largely undifferentiated in performance Back and forth movement, where one innovates, the other catches up 3. New products unreliable source: stock prices indicate companies experience high growth and then large falls. Its stock prices correspond with rise and stall in revenue growth Unstable as they face saturated markets, competitors and changes consumer priorities Most companies will find it troubling to form a strategy and tell investors they can have sustainable growth for 10 years and beyond Managers need to understand that these factors lead to instability and temporary revenue growth 7. According to M. Porter in his article “Strategy & the Internet” the arrival of the internet brought an early euphoria. Please define & describe the factors (4) that led to this euphoria. What were the implications (2) of this euphoria to strategy formulation in those times. 4 factors that led to euphoria: 1. everyone tended to focus on what the internet could do and how quickly its use was expanding rather than on how it was affecting industry structure 2. assumption that internet would increase switching costs : as switching costs rise, buyer power falls, decreasing strength of the force. Belief was that people would get familiar with one company’s interface, and be resistant towards switching to another one. However, switching costs are actually lower and buyer power is stronger because of access to real time information about substitutes and supplier products. There are XML standards that eliminate the need for companies to reconfigure their systems if they switch suppliers. 3. assumption that internet would create strong network effects (the idea that Internet becomes more valuable as more people use it). Didn’t actually occur because in order to gain the benefit, the firm has to own the network. Internet is open and standardized, so it makes it difficult to establish boundaries and for one company to capture all benefits. 4. belief that partnering is a win-win means to improve industry economics (ie partnering in terms of products that are used to complement another industry’s product OR outsourcing): Complements can actually exacerbate industry forces, rather than mitigate. Complements can help to increase switching costs, which decreases threat of entry and buyer power, but if it standardizes an industry’s 3
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BU481 – Midterm #2 Questions- List 1 & 2 2010 offering, it increases rivalry. Rather than focusing on what is strategically best for the company, partnership means they have to continually balance objectives and make compromises. Outsourcing (a form of partnering) actually decreases industry
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