TIM 002

Market Structure

	Perfect Competition	Monopolistic Competition	Oligopoly	Monopoly
Number of firms	Almost Infinite	Many	Few	One
Barriers to Entry	No barriers	No barriers / Low barriers	Some barriers	High barriers
Influence over Price	Price Taker	Limited	Some	Price Maker
Nature of Product	Homogeneous	Differentiated	Similar, Differentiated	No close substitutes
Examples	Common agricultural products	Fast-food restaurants	Auto Industry	Utilities

Porter's 5 Competitive Forces

1. Threat of New Entrants: Profitable industries that yield high returns will attract new firms. New entrants eventually will decrease profitability for other firms in the industry.
2. Threat of Substitutes: A substitute product uses a different technology to try to solve the same economic need.
3. Bargaining Power of Customers: The market outputs. The ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.
4. Bargaining Power of Suppliers: The market inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes.
5. Competitive rivalry: For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Threat of New Entrants

Barriers to entry ⬆️, Profits ⬆️

• How difficult it is for new business to enter an industry and compete with already established ones.
• Many competitors lead to lower average profits
• Threat of New Entrants:
  • Barriers to entry
  • Economies of scale
  • Brand loyalty
  • Capital requirements
  • Cumultative experience
  • Government policies
  • Access to distribution channels
  • Switching costs

Threat of Substitute Products

• A substitute product or service is an alternative that serves the same purpose for the customers, from a different industry.
• For example,
  • Taxi vs. Uber
  • Train vs. Plane
  • Tea vs. Coffee vs. Soft Drinks
• Threat of Substitutes Products:
  • Number of substitute products available
  • Buyer propensity ot substitute
  • Relative price performance of substitute
  • Perceived level of product differentiation
  • Switching costs

Bargaining Power of Customers and Suppliers

• Bargaining power of customers:
  • Number of customers
  • Size of each customer order
  • Differences between competitors
  • Price sensitivity
  • Buyer's ability to substitute
  • Buyer's information availability
  • Switching costs
• Bargaining power of suppliers:
  • Number of suppliers
  • Size of suppliers
  • Uniqueness of each supplier's product
  • Focal company's ability to substitute

Rivalry among Existing Competitors

• The extent of competition within an industry
• Price wars
• Rivalry among existing competitors:
  • Number of competitors
  • Diversity of competitors
  • Industry concentration
  • Industry growth
  • Quality differences
  • Brand loyalty
  • Barriers to exit
  • Switching costs
• For example,
  • Woolworths vs. Coles
  • Apple vs. Samsung

KANO Model

• Expected (Basic or Must-be) Attribute: whose presence doesn't directly increase satisfaction, but their absence causes extreme dissatisfaction.
  • car: a functioning brake is a must be quality
  • hotel: providing a clean room is a basic necessity
• One-Dimensional (Performance) Attribute: can both satisfy and dissatisfy customers depending on their execution.
  • car: acceleration
  • hotel: waiting service at a hotel
• Attractive (Delight) Attribute: differentiate products and services, creating a "wow factor" and delighting customers when present, but causing no dissatisfaction when absent.
  • car: advanced parking sensor
  • hotel: providing free food
• Indifferent Attribute
  • car: the color of the car
  • hotel: highly polite speacking and very prompt responses not be necessary to satisfy customers
• Reverse Attribute
  • web: auto-playing videos/audio
  • venue: unnecessary security checks at the entrance of a venue

Possible movement of Attributes' place

• As customer expectations change with the level or performance from competing products, attributes can move from delighter to performance need and then to basic need.