Tag Archives: Planning

Barriers to entry, a short review

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George J. Stigler won an Alfred Nobel Prize in 1982 for his work in economics sciences, and his thoughts on barriers to entry have been shaping marketing ever since. Barriers to entry are obstacles or areas that block the path of a company who is attempting to enter a market.

For those of us who either slept through marketing economics, or it has blurred together between not sleeping and partying, I think a little refresher is in order. This is just a brief overview of barriers to market entry, so let us not over examine it.

Barriers protect firms who are competing in a market, by keeping newcomers out. They are also key to a company’s pricing power, giving a company the ability to raise or lower prices without losing customers.

Common types of barriers include: Advertising, Control of resources, Customer loyalty, Economies of scale, Distributor agreements, Government regulations, Inelastic demand, Intellectual property, Network effect, Predatory pricing, Research and development, Sunk costs and Vertical integration.

Michael Porter, the Bishop William Lawrence University Professor at Harvard Business School has defined some clear effects of high and low entry and exit barriers of market entrance.

  • High entry barriers have very few players, creating higher profits.
  • Low entry barriers have many players, creating lower profits.
  • Markets with high exit barriers are seen as unstable, causing profits to fluctuate.
  • Markets with low exit barriers are more self-regulated, and profits do not fluctuate as much.

There are also four general types of competition that relate to these theories:

  1. Perfect competition: Almost no entry barriers
  2. Monopolistic competition: Low entry barriers
  3. Oligopoly: High entry barriers
  4. Monopoly: Extremely High, almost Absolute entry barriers

So what does it all mean?
Simply, that if you think about things before you act then you’re twice as likely to accomplish your goals. But more importantly, there are many things that you should consider before launching a product into a new market. And as always, I have a quick example from my school days.

Example: Nike Air Jordans are for Gods
I remember, only slightly, reviewing case studies relating to missing the mark with product launches. One such case study that has always stuck with me is the case of Nike vs. CAIR. The article revolved around how Nike, in 1997-98 was force to recall 800,000 shoes because they had almost directly translated the word “Air” into “Allah.” This is probably one of the best cases of how a company must be aware of cultural differences when entering a new market, and how different cultures now play into market entrance.

Symptoms of Not Planning

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Planning is a corner stone to doing business efficiently. To help companies understand the symptoms of not planning I have tried to generate a list of common symptoms. Hopefully this will help anyone who is suffering from these symptoms to take notice before they become too bogged down.

  • Board and committee meetings last three or four hours.
  • Poor participation and attendance at meetings.
  • Good ideas come out but nothing seems to get down.
  • Organization seems to focus on crisis after crisis.
  • Hard to know when to take advantage of an opportunity.
  • Agenda for meetings seem to ramble without focus. Organizations has a hodge-podge of seemingly unrelated projects.
  • People don’t follow through on their commitments.
  • Quick start, but slow finish to each year.
  • Blind-sided by outside factors or events.
  • Can’t attract outside money to fund critical projects.
  • Fifteen people on the board, but four people do all the work.
  • Hard to communicate the important progress an organization has made over the years

I hope that some of these thoughts that I have shared with you today will help you to foresee problems within your own planning environment and take the relevant steps to prevent these types of issues from occurring. If you know anyone who might be suffering from these symptoms or if you yourself might be seeing these same problems then please don’t hesitate to contact the Newman Partnership Ltd. to arrange a free season on how we can help you deal with the symptoms of not planning.