Pindelski_Competitive_Strategies

3. What assumptions are impossible to be made there?

The sector’s life cycle consists of four basic phases. It is possible to divide them into shorter episodes, if only their characteristics actually differ from the other. However, four of them already indicate certain specific behaviours and enable the drawing of conclusions on the strategy and principles of competition. The length of each phase depends on numerous variables, characteristic for the market, just like the proportions between them.

The initial phase or introduction means the time the sector has only just appeared on the market. It may be brand new, but it may also be separated from an existing one. It happens particularly in the old, historically conditioned sectors that diverge into numerous branches, becoming separate integrities possible to be distinguished from the market. Such a situation took place on the bookselling market in which the appearing e- book readers, audio-books and electronic versions of books have created a separate sector that behaves in a different way as compared to traditional books. At the initial stage, it is difficult to expect fast growing tendencies. The buyers must become convinced with the new solutions, become familiar with the offer, some of them find the lack of choice an issue, because at this stage there is usually one or very few suppliers. The competition is restricted, if any, it competes with the basic characteristics of the offer directed to the wide segments. The strategies are poorly diversified and the fighting, more often than not, takes place inside the organization, for obtaining profitability as the expenses are significant, while revenues vary from scarce to medium. This is a period of uncertainty and wrong decisions. This is also a period in which the clients are getting used to the new offer, while the other environment elements – to the new conditions. From the organization’s point of view, this is a period of intensified investments with low turnover and uncertain profits. The pioneers entering such markets very often “die with an arrow in their backs” shot by the competitors who may succeed on learning of the costly mistakes of the former. This is a stage at which the organizations learn to act, compete, change their strategic targets and formulate the business models. At this stage the strategic resources as well as the brand and organization method are also formed here.

The growth phase follows as the next one. The number of buyers grows, the market expands and the competitors appear along with it. Sometimes the number of competitors is very large and diversified. At the second half of the growth phase appear even those who know very little or nothing about this business area. The vision of turnover and

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profits attracts numerous groups of players. Although the competition is significant, the expanding segment results in the fact that there is still something to share and the growths of the turnover of particular organizations are largely the result of the market growth rather than winning it from the competitors. The appropriate strategies here consist in the type of development that exceeds the development rate of the entire sector. The offer and strategies gradually start to diversify and some entities already think of building barriers to entry. However, due to the fact that these are long-term processes, they do not usually appear at the growth stage. The organizations improve their ways of providing services and production, gain experience and operate actively. This is a period in which the investments, particularly those translated into work, are significant. The turnover, although growing, not always guarantees high profits. A frequent error here is the growth of costs and taking over suppliers and distributors at overrated prices, vertical integration). At a later stage of growth the market begins to consolidate, some of the organizations start to face financial problems and go bankrupt, others are taken over by larger ones so that the number of competitors at the initial stage of another phase would not exceed usually a few – up to a dozen or so. They try to apply the diversification strategies in order to be effectively distinguished against all the suppliers.

Maturity phase is a period in which the market has become saturated. Upon saturation it does not grow fast any more. It may even go through stagnation, without growth, and sometimes with slight drops of turnover. Competition intensifies here. The growths of turnover depend on winning them from the competitors. In as much as winning the market was the target in the preceding phase, in so far the target here is to win it from the competitors. The offer begins to diversify, entry barriers appear, the experience is immense and the wealth of some players’ portfolios – significant. The fighting becomes fiercer and the situation is pretty foreseeable in general. Obviously a vast portion of the entities would go bankrupt or withdraw, however, these are usually those who had not developed any competitive strategies by then or were unable to reduce costs fast. In addition, these are often those who entered the market in the last phase of growth. Thus, they are poorly prepared for competition, but also have insufficient experience. This phase, particularly at its first stages, requires the reduction of costs and development of high return rates. This is a time of wide and diversified product portfolios, distinction, numerous strategies and ways of competing. A strategy applied with particular frequency is that of seeking niches, narrow segmentations enabling the maintainence of a certain level of profitability and reduction of costs, in order to be able to offer lower prices. At

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later stages of the maturity stage the number of competitors is already scarce. Weaker entities have either been taken over by some larger ones or have gone bankrupt. At the later stages of maturity one or few players are visible clearly and at a still later stage, in addition to the giants, a few small niche suppliers appear, oriented to serving narrow niches. Oligopolies and monopolies are formed. The experience curve and the production scale achieved allow for the minimization of costs. The domination on the market enables the mass production. Margins are often significant, like profitability and profits.

The end phase occurs when the market begins to shrink. The decreasing number of customers ordering shrinking supplies and oriented to pay decreasing prices are characteristic. The competition gradually vanishes, usually one or two competing players remain and try to win the shrinking market. Finally one, with 100% share in the shrinking market either vanishes along with it or starts to deal in the niche residue thereof.

Exercise 5

Kodak and the industry life cycle

Kodak used to be the world’s leader at the production and sales of cameras, photographic films and photo development and processing equipment, for years. Competing with Fuji, OrWo, Agfa, Konica and other suppliers they did not notice once that the product had been ousted by digital matrixes. In 2012, performing one of their strategic targets and achieving almost 100% of the market of photographic films, they announced bankruptcy. The market simply shrank so much that the turnover could not maintain the international structure of the company, their laboratories, distribution channels, etc.

Discussion questions:

1.Why companies do not notice changes in a lifecycle and do not follow one ?

2.What should Kodak do to watch the lifecycle ?

Fig.7 Sector’s life cycle – turnover and profitability

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Fig 8 Different types of life cycles

1.Growth – drop – maturity model

2.Cycle – recycle (double cycle) model

3.Ridge model

Source: author’s own elaboration on the basis of Kerin R., Hartley S., Rudelius W., (2012)

Marketing, 11th Edition, McGraw-Hill/Irwin, USA

Exercise 7

WAP technology and life cycle

Building web pages based on WAP technology enabling one to read the internet contents on mobile phones without advanced displays seemed to be a very interesting emerging sector. A significant number of suppliers of the service, web page makers and translators of contents into WAP compatible appeared. Although both web page makers and mobile telephony operators tried to convince the market to use the said solutions, the sector has practically vanished after a short period. They failed to convince a sufficient number of potential customers, the product was not very attractive visually and its construction – costly.

Questions and tasks:

1.What life cycle phases occurred here?

2.Draw a scheme of the life cycle of this sector.

Questions and discussions

1.What is SWOT analysis and what does it include?

2.Specify the basic steps in the point analysis of the sector attractiveness.

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3.Describe the foundations of life cycle analysis.

4.What is sector life cycle analysis? What conclusions can you draw depending on the phase the sector was at?

5.Provide a point evaluation of the business school sector in your country. What criteria of the sector attractiveness do you suggest?

Case study 11

Cafe Aroma: From Israel to Poland (לארשי המורא הפק )

Information about the company: http://www.aroma.co.il/en

(For information on the company and their strategy - see chapter 4, in the case study. The launching of Aroma Cafe on the Polish market will be discussed here and the sector’s evaluation and analysis will be carried out from this point of view.)

Analysis of Macro Environment of Aroma Cafe. Further environment dimensions: Political and legal: growing fiscalism in Poland, unstable fiscal regulations, relatively significant freedom within the international trade, particularly with the EU states, foreseeability of the political market.

Technological: very well developed internet and fast dissemination of information and knowledge on new methods of organization, products and technologies, stress on automated production and service provision, relatively easy access to global technologies, significant saturation of business with new technologies, however low level of pressure on research and development in businesses located in Poland.

Economic: Poland was the only EU member state that noted GNP growth for the years 2009-2011, maintenance of national currency (PLN) exposed to exchange rate risk, surrounded by countries that have already accepted the Euro, relatively high unemployment level (presently ca. 14%, reaching 25% in some regions), low labour costs as for the EU, growing energy costs, however slightly below those of other EU countries, stable and low inflation level, growing wealth of the society and cash in the economy, growing role of public expenses, rising reluctance of banks to grant loans or credits, particularly for higher risk business.

Social-cultural: in the circles of people with higher income (ca.. 15% of the society, growing californization of needs and hedonism (seeking for sensations, strong

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emotions, however associated with comfort and safety and reluctance towards much effort), the growing consumptionism in the entire society, growth of interest in staying out, using dining services to a wider extent, taking over global trends, the appearance of a slow life fashion, willingness to save money due to the expected recession.

Potential points of contact with the specific dimensions of further environment

Aroma Cafe and other businesses of this kind must:

•Obtain licenses and permits related to dining places and the possible vending activity.

•Obtain loans for furnishing cafes and the possible vendors.

•Buy equipment manufactured overseas.

•Make decisions on location of the coffee parlours and the vendors (big cities, medium small towns)

•Win customers for relatively expensive cafe services.

•Encourage clients to spend time at a cafe or buy coffee in the street.

•Increase coffee consumption.

•Blog and run web forums on drinking coffee referring to slow life.

•Decide on the purchase of less or more proeco packages and run business under ecological principles.

•Incur labour, employment and tax costs.

•Compete and determine new fashions and trends on the coffee market.

Tab.13 Café Aroma SWOT Analysis

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1.Complete, according to your own observations, the closer and further environment analysis.

2.Complete the SWOT analysis in the tab.13 according to your knowledge, opinions and observations of the company and market.

3.What conclusions from the three analyses can be presented for the strategy? Is the market in Poland attractive or not and why?

4.Make a point analysis of this sector’s attractiveness.

5.What is the life cycle stage the sector is at in your opinion? What conclusions can be drawn from it?

6.Now settle whether the market is attractive and define the conclusions for the strategy.

Further readings

To be read and study by yourself . You can discuss the papers, materials and conclusions during the next class.

1.Fleisher S. Craig, Bensoussan E.Babette, Business and Competitive Analysis: Effective Application of New and Classic Methods, FT Press, 2007

2.Baum A.C. Joel, Business Strategy over the Industry Lifecycle, Volume 21, in: Advances in Strategic Management, Emerald Group Publishing, 2004

Bibliography

1.H. Godlewska – Majkowska H., (ed.), (2009), Przedsiębiorczość. Jak założyć i prowadzić własną firmę, SGH, Warsaw

2.Gierszewska G., Romanowska M., (1997), Analiza Strategiczna Przedsiębiorstwa,

PWE, Warsaw

3.Kerin R., Hartley S., Rudelius W., (2012) Marketing, 11th Edition, McGrawHill/Irwin, USA

4.http://www.aroma.co.il/en

6. Competitive analysis in industry.

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Maps of strategic groups in sectors. Industry structure analysis. Fragmented and concentrated sectors. Resistance of both excessive industry fragmentation and concentration.

Pre-class readings:

1. Frank Robert J., George Jeffrey P., Narasimhan Laxman, (2004), When your competitor delivers more for less. Value players will probably challenge your company. How will you respond?, McKinsey Qaterly, February 2004,

Article available on: http://www.mckinseyquarterly.com/When_your_competitor_delivers_more_for_less_1 383

Task: Prepare a short presentation demonstrating the main thesis, assumptions and conclusions of the article.

Additional questions to be answered and/or discussed after pre-class readings:

1.What drives companies to deliver to their customers more for less ?

2.What differs markets where competition is strong to them and where competition is weak ?

3.Are there on the market some groups of companies where the competition is stronger or the competition is between all the companies present on the market ?

4.How do we find out and describe groups of more or less similar companies aiming at the same market spots ?

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