Business Plan Definition Wikipedia

Business Plan Definition Wikipedia-60
"All of these factors combined will affect your ability to compete," Cook noted."They will impact your ability to use your supplier relationship to establish competitive advantages with your customers."The reverse situation occurs when bargaining power rests in the hands of buyers.Powerful buyers can exert pressure on small businesses by demanding lower prices, higher quality, or additional services, or by playing competitors off one another.

"All of these factors combined will affect your ability to compete," Cook noted."They will impact your ability to use your supplier relationship to establish competitive advantages with your customers."The reverse situation occurs when bargaining power rests in the hands of buyers.Powerful buyers can exert pressure on small businesses by demanding lower prices, higher quality, or additional services, or by playing competitors off one another.

Substitution can be subtle—for example, insurance agents have gradually moved into the investment field formerly controlled by financial planners—or sudden—for example, compact disc technology has taken the place of vinyl record albums.

The main defense available against substitution is product differentiation.

The intensity of competition tends to increase when an industry is characterized by a number of well-balanced competitors, a slow rate of industry growth, high fixed costs, or a lack of differentiation between products.

Another factor increasing the intensity of competition is high exit barriers—including specialized assets, emotional ties, government or social restrictions, strategic interrelationships with other business units, labor agreements, or other fixed costs—which make competitors stay and fight even when they find the industry unprofitable."Industry attractiveness is the presence or absence of threats exhibited by each of the industry forces," Cook explained.

Understanding your industry and anticipating its future trends and directions gives you the knowledge you need to react and control your portion of that industry," Kenneth J. "However, your analysis of this is significant only in a relative sense.

Since both you and your competitors are in the same industry, the key is in finding the differing abilities between you and the competition in dealing with the industry forces that impact you.Industry analysis is a tool that facilitates a company's understanding of its position relative to other companies that produce similar products or services.Understanding the forces at work in the overall industry is an important component of effective strategic planning.Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge," Porter explained.Product substitution occurs when a small business's customer comes to believe that a similar product can perform the same function at a better price."The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long term return on invested capital," Porter stated."The goal of competitive strategy for a business unit in an industry is to find a position in the industry where the company can best defend itself against these competitive forces or can influence them in its favor." Understanding the underlying forces determining the structure of the industry can highlight the strengths and weaknesses of a small business, show where strategic changes can make the greatest difference, and illuminate areas where industry trends may turn into opportunities or threats.For example, suppliers gain power when an industry relies on just a few suppliers, when there are no substitutes available for the suppliers' product, when there are switching costs associated with changing suppliers, when each purchaser accounts for just a small portion of the suppliers' business, and when suppliers have the resources to move forward in the chain of distribution and take on the role of their customers.Supplier power can affect the relationship between a small business and its customers by influencing the quality and price of the final product.If her business's "payroll per employee" figure is higher than the industry average, she may wish to investigate further.Checking the "employees per establishment" ratio would be a logical place to look next.

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