4.4 Strategic Frameworks: Porter’s Five Forces and SWOT Analysis

Rating each of Porter's five forces, building a SWOT grid, and turning both frameworks into a strategic decision a business can price.

Transcript (200 lines)

0:00 On a January morning, the for-lease sign two blocks from Steep Street Boba comes
0:04 down, and the notice taped inside the window names the new tenant.
0:08 Bubble Empire, a national boba franchise with about four hundred locations,
0:13 an ordering app with a loyalty program, national advertising,
0:17 and an everyday price of five dollars and fifty cents,
0:20 opens in March.
0:22 Cami passed on that lease in November; the criteria chose the trailer,
0:27 and the decision stands.
0:29 What she needs now is a plan for competing next to a chain,
0:33 and business strategy keeps two standard frameworks for this moment:
0:37 one reads the market, and one reads her own shop against it.
0:41 I'm Logan Shaffer, and this is MAMAKO's AP Business,
0:44 Topic 4.4: Strategic Frameworks: Five Forces and SWOT.
0:51 Two skills by the end: read the competitive intensity and potential
0:55 profitability of a market with the Five Forces framework,
0:58 and build a SWOT analysis that turns that reading into a strategic decision.
1:03 Practice questions for this topic are in the next video.
1:06 Let's go.
1:08 Start with the market.
1:10 Michael Porter's Five Forces is a framework for evaluating the competitive
1:14 intensity, the attractiveness, and the potential profitability of a competitive
1:19 environment.
1:20 A business runs it when a strategic decision depends on the environment,
1:24 which new market to enter or which pricing strategy to adopt,
1:28 and both decisions are live at Steep Street this winter.
1:32 The framework names five forces that shape competition:
1:35 existing competitive rivalry, the threat of new entrants,
1:39 the threat of substitute products, customer power, and supplier power.
1:45 Each force describes power held by one group of participants in the market and
1:49 how that power can threaten a business's ability to compete.
1:53 Strong forces make an environment less attractive and cut its potential
1:57 profitability; weak forces make it more attractive and raise it.
2:02 Cami rates each force on her own neighborhood market.
2:07 Competitive rivalry is the competitive intensity among the businesses already in
2:12 the market, and three things determine it: the number of rivals,
2:16 the degree of product differentiation, and how much pricing power the businesses
2:21 hold.
2:22 Rivalry is typically the strongest determinant of competition in any
2:26 environment.
2:27 Cami's read: for three years the neighborhood held zero direct boba rivals,
2:32 and in March it holds one, two blocks away, carrying a national brand and an
2:37 everyday price fifty cents under hers.
2:39 Two sellers of near-equivalent drinks within a two-block walk leaves neither
2:44 with much pricing power.
2:45 By count, one rival is few; the exam's textbook strong-rivalry case pairs many
2:51 rivals with equivalent products and little pricing power,
2:54 and here the other two determinants dominate.
2:57 Rivalry rates strong, and it is the strongest force on her ring.
3:02 The threat of new entrants is the ease of entry into the market,
3:05 and barriers to entry determine it: the threat is strong when barriers are low and
3:11 a new business can enter and capture share easily.
3:14 Twenty-one thousand dollars and a co-signature got Cami into this market
3:18 three years ago, and the franchise's arrival just re-proved the point.
3:23 New entrants rate strong.
3:26 Substitute products meet the same customer need without being direct competitors.
3:31 The need Steep Street serves is a cold treat drink after school:
3:35 the coffee drive-through, the smoothie shop by the gym,
3:38 the gas-station energy drink.
3:40 The threat is strong when alternatives are cheaper, easier to reach,
3:44 or higher quality. All three run cheaper per drink; none of them is boba,
3:49 and the line at three fifteen wants boba.
3:52 Substitutes rate moderate.
3:54 Customer power is the buyers' power to drive prices lower,
3:58 shaped by the number of customers, the cost of acquiring them,
4:01 and their switching costs, meaning the monetary and psychological costs of
4:05 changing the product or brand you buy.
4:08 The threat rates strong when customers are few, each one a large share of sales,
4:13 acquisition costs high, and switching costs low.
4:17 Her customers are many and small, no single teenager moves Steep Street's
4:21 revenue, and a word-of-mouth shop pays little to acquire the next one:
4:25 three conditions point weak.
4:27 The fourth bites: switching costs sit near zero, because the other counter is a
4:32 two-block walk and fifty cents cheaper.
4:35 The one switching cost Cami has manufactured herself is the punch card,
4:39 nine punches and the tenth drink free, and forty percent of transactions now carry
4:44 one.
4:45 Customer power rates moderate by the test, and the switching-cost condition is the
4:49 one that bites.
4:50 Supplier power is the ability of resource providers to raise input costs,
4:55 and the competitiveness of the resource market determines it:
4:59 few providers plus high switching costs means strong suppliers.
5:03 Teas and syrups come from multiple suppliers, so those markets stay
5:07 competitive.
5:08 Tapioca is the exposed input: one dominant regional importer supplies both
5:14 shops, tapioca is about thirty cents of her dollar-fifty cup cost,
5:19 and the chain's volume earns tier pricing Cami cannot get.
5:22 Supplier power rates moderate to strong, and the concentration is tapioca-specific.
5:30 Add up the ring: strong rivalry, strong entrants, a supplier leaning strong,
5:35 and moderate customers with a sharp switching-cost edge.
5:39 This environment is less attractive than it was in December,
5:43 and its potential profitability fell.
5:45 A four-hundred-location franchise studied this market and chose to pay rent in it,
5:50 and chains do not sign leases in shrinking categories,
5:53 so the same signature that raised the rivalry also confirmed the category is
5:57 growing.
6:00 A strong-forces market that big players still want to enter is a different problem
6:04 from one everyone is leaving.
6:08 The Five Forces read the market.
6:10 SWOT analysis reads the business inside it: a framework for evaluating the
6:15 internal and external factors that influence a business's ability to
6:19 accomplish its goals and remain competitive.
6:23 Four factors give it the name: strengths and weaknesses,
6:27 which are internal and under the business's control,
6:30 and opportunities and threats, which are external and beyond it.
6:35 The internal half assesses the business's capabilities,
6:38 financial, physical, and human resources, plus the intangible assets:
6:43 brand recognition, reputation, intellectual property.
6:47 A capability only becomes a strength or a weakness by comparison,
6:52 judged against rivals, industry benchmarks, the business's own past
6:56 performance, and the external factors around it.
7:00 The external half assesses potential market size, customer preferences,
7:04 the PESTEL factors, and the Five Forces themselves, which is why Cami ran the ring
7:09 first: the market read feeds the grid.
7:14 Strengths, each one earned by comparison.
7:18 Her gross margin runs seventy-five percent against an industry benchmark near
7:22 seventy. Her brand carries three years of community recognition.
7:26 Her catering side served twenty-four events in the trailing year and now has
7:31 trailer capacity behind it.
7:33 Forty percent of transactions carry a punch card, a measured repeat base.
7:38 Her crew is trained, with a shift lead running the schedule.
7:42 And her entire debt service is five hundred seventy dollars a month across two
7:46 small notes, with no co-signer.
7:49 Weaknesses, same test.
7:51 One fixed location, two blocks from the rival.
7:55 Management depth of exactly one founder and one shift lead.
7:59 A marketing line of three hundred dollars a month against a national campaign.
8:03 No ordering app, against a chain built around one.
8:07 And a six-dollar price against the chain's five fifty.
8:11 Notice the pattern: most of those weaknesses cost real money to fix,
8:15 and exactly one is affordable.
8:19 Opportunities are external factors, beyond a business's control,
8:23 that can contribute to its success: market growth, reduced competition,
8:28 technology advancements, favorable changes in regulation.
8:32 Cami's cell: catering demand is growing, with last year's twenty-four events
8:37 pointing at a forty-event plan.
8:39 The chain's national advertising grows the whole category.
8:43 School and community-college event partnerships sit unclaimed.
8:47 And the trailer can reach towns with no boba at all,
8:50 markets where the ring would rate every force weak.
8:54 Threats are external factors that can hurt the business:
8:57 rising input costs, natural disasters, unfavorable regulation,
9:02 disruptive innovation.
9:04 Her cell: a price war, opening with a two-week buy-one-get-one launch and a
9:09 sustained five-fifty everyday price.
9:12 The tapioca importer's pricing power, straight off the ring.
9:15 The chain's app and loyalty program, working daily to manufacture the switching
9:20 costs she earns by hand.
9:22 And if the first unit works, a second one.
9:27 The grid exists to drive strategic decisions: build on strengths,
9:31 address weaknesses, capitalize on opportunities, respond to threats.
9:36 Start with the decision the launch forces, pricing.
9:40 Should she match five fifty?
9:42 Run the arithmetic before you answer.
9:46 Matching cuts her contribution per cup from four fifty to four dollars,
9:50 and holding October's fifteen thousand three hundred dollars of gross profit at
9:54 four dollars a cup takes three thousand eight hundred twenty-five cups:
9:58 four hundred twenty-five extra cups a month, a twelve and a half percent jump,
10:03 just to stand still.
10:05 A price war rewards whichever side can lose money longer,
10:09 and the side with four hundred locations always can.
10:12 She holds six dollars.
10:14 The rest of the response runs cell by cell.
10:16 Build on strengths: community, catering, quality.
10:20 Address the one weakness she can afford: push the punch-card repeat rate from forty
10:24 percent toward fifty, because a manufactured switching cost is her
10:28 cheapest defense.
10:30 Capitalize on the opportunity: the trailer goes where the chain's lease cannot,
10:35 festivals, school events, the towns with no boba.
10:39 And respond to the threat without copying it: no price match,
10:43 no app she cannot afford to build well, no fight on the chain's terms.
10:48 The strategy card from November already said it: grow where the brand already
10:53 wins.
10:54 The frameworks confirmed that strategy and priced the tactics that serve it.
11:00 April is the franchise's first full month.
11:03 Counter sales drop ten percent from the dashboard's thirty-four hundred,
11:07 to three thousand sixty cups; the buy-one-get-one launch and the fifty-cent
11:11 gap are real.
11:13 Events and the trailer add five hundred forty cups across three bookings,
11:18 including the trailer's first festival.
11:20 The total: three thousand six hundred cups, twenty-one thousand six hundred
11:25 dollars, the shop's best April ever, with the rival open two blocks away.
11:30 The arc's last card shows the whiteboard's daily cup count beside the KPI dashboard,
11:36 and both are true: the counter got harder, the business got bigger,
11:40 and the difference is strategy.
11:44 That's Topic 4.4: a scary headline turned into a rated ring,
11:49 a four-cell grid, and a decision the numbers defend.
11:52 This topic also closes the exam-weighted course.
11:56 Units 1 through 4 are what the AP Exam tests, and every tool it tests is now in
12:02 your hands.
12:03 Unit 5 is the capstone: the course's tools turn on the money you will actually earn,
12:09 paychecks and taxes, insurance and risk, and the long arithmetic of investing.
12:14 One card from Unit 3 returns to open it: the savings tracker that once filled
12:19 toward a festival, relabeled for a first full-time paycheck.
12:24 If this helped, a like tells YouTube to show it to more first-cohort students,
12:28 and subscribing gets you the whole course, in order,
12:31 as it's built.
12:33 And the free AP Business vocab pack, every key term from all five units,
12:38 is waiting at mamako.app, link below.
12:42 The 4.4 practice video is ready next.
12:45 See you next time.

Steep Street Boba

January through April. The for-lease sign comes down and the rumor confirms: a national boba franchise of about four hundred locations opens two blocks away in March at five dollars fifty, with an app, a loyalty program, and a two-week promotional launch. Cami rates all five forces on her own market, builds a SWOT grid from the result, and prices the obvious reflex: matching five fifty would take four hundred twenty-five extra drinks a month just to stand still. She holds six dollars. In April, the rival's first full month, counter volume falls ten percent and total volume reaches three thousand six hundred drinks, the shop's best April on record.

Teaches: Rating each of Porter's five forces, building and reading a SWOT grid, and converting both frameworks into a priced strategic decision. the whole story

The Five Forces Framework

Michael Porter's Five Forces rates how intense a competitive environment is and how much profit it will support. Reach for it when a decision turns on the environment rather than on the business itself, such as which pricing strategy to adopt or which market to enter. Five forces shape competition: competitive rivalry, the threat of new entrants, the threat of substitute products, customer power, and supplier power. Each names power held by one group of market participants, and how that power threatens the business.

Competitive Rivalry and New Entrants

Competitive rivalry is the competitive intensity among businesses already selling in a market, and three determinants set it: how many rivals there are, how differentiated the products are, and how much pricing power those businesses hold. Rivalry is usually the strongest determinant of competition, so rate it first. The threat is strong when many direct competitors offer equivalent products and nobody has room to set price. Watch the three separately, because they can disagree: one near-equivalent rival who leaves neither seller room to move price still rates rivalry strong, even though the rival count is low.

The threat of new entrants measures how easily a newcomer can get into the environment, and barriers to entry determine it. The threat rates strong wherever barriers are low. Rate it from the business's own history: if modest savings and one co-signature were enough to open three years ago, barriers are low, and a competitor's arrival re-proves it.

Substitutes, Customer Power, and Supplier Power

A substitute meets the same customer need while not competing directly, and the threat rates strong where the alternatives cost less, are easier to reach, or are simply better. If the need is a cold treat drink after school, the substitutes are a coffee drive-through, a smoothie counter, and a gas-station energy drink: cheaper, but none of them the product, which rates moderate.

Customer power is the ability of buyers to push prices down, shaped by how many customers there are, what they cost to acquire, and their switching costs, the money and mental friction of changing the product or brand they buy. The threat rates strong when customers are few, each represents a large share of sales, switching costs are low, and acquisition costs are high. Many small retail buyers make three of those point weak, so a store full of individual customers is not automatically a strong-customer-power case. The condition that bites is switching cost, near zero when a rival counter is a short walk away, which is why loyalty punch cards exist.

Supplier power is the leverage resource providers hold to push input costs up, and how competitive the resource market is decides how much of it they get. The threat is strong when providers are few and switching is expensive. Concentration is usually input-specific: several suppliers may compete for most inputs while one importer supplies the ingredient making up a fifth of unit cost, and that input carries the rating.

Reading the Ring as a Whole

Once every force is rated, the overall read follows the rule above: strong forces mean a less attractive, less profitable environment, weak forces the opposite. A market with strong rivalry, low barriers, and a leaning supplier is a harder place to earn a margin than it was. But a strong-forces market large players still choose to enter differs from one everyone is leaving, because a national operator signing a lease is evidence about category growth. Both halves belong in a complete answer.

What a SWOT Analysis Is

Five Forces reads the market. SWOT analysis reads the business inside it. It weighs the internal and external factors that shape whether a business can reach its goals and stay competitive, and four of them give it its name. Strengths and weaknesses are internal factors, inside the business and under its control. Opportunities and threats are external factors, outside the business and beyond its control.

The internal half assesses what the business holds: human, physical, and financial resources, plus intangibles such as brand recognition, reputation, and intellectual property. A capability earns the label strength or weakness only by comparison, against rivals, benchmarks, past results, and outside conditions. The outward-facing half assesses market factors such as market size and customer preferences, the PESTEL factors from Topic 1.3, and the Five Forces ring itself, which is why the ring is run first.

Strengths and Weaknesses

Strengths are internal advantages: brand recognition, product quality, skilled employees, intellectual property, an efficient supply chain, ample funds, and core competencies. Every one earns the label by comparison: a seventy-five percent gross margin is a strength because the industry benchmark sits near seventy, and three years of community recognition is a strength because the newest competitor has none.

Weaknesses are internal disadvantages: product flaws, low brand recognition, outdated technology, poor customer service, limited funds, supply chain risks, missing core competencies, and an inability to staff skilled roles. A single location, thin management depth, and a small marketing budget against a national campaign are all real, and most are expensive to correct. Sorting the cell by cost to fix is what turns it into a plan.

Opportunities and Threats

Opportunities sit outside the business and past its control, and they can help it succeed: reduced competition, technology advancements, market growth, and favorable regulatory change. An opportunity is only worth listing if the business could reach it. Growing demand for a service it already delivers well qualifies, and so does a competitor's national advertising, which grows the category even though the competitor paid for it.

Threats are external factors that may hurt the business: rising input costs, natural disasters, unfavorable regulatory change, and disruptive innovation that changes how customers meet their needs. A price war launched by a better-capitalized rival is a threat, and so is that rival's loyalty app, which manufactures switching costs at a scale a small shop cannot match. One fact can sit in two cells: a rival's advertising threatens the business and grows the category.

Turning the Grid Into a Decision

Businesses use SWOT results to address weaknesses, build on strengths, respond to threats, and capitalize on opportunities. The grid is worthless if it stops at four lists, so run each cell into an action and price the tempting reflex first. Suppose a rival opens at $5.50 against a $6.00 price. Matching cuts contribution from $4.50 to $4.00 a unit, so holding $15,300 of gross profit takes 3,825 units instead of 3,400: 425 extra units a month, up twelve and a half percent, to stand still.

A price war rewards whichever side can lose money longer, and a four-hundred-location chain always can, so the arithmetic argues for holding price. Build on strengths the rival cannot copy quickly. Address the affordable weakness, which here means raising the repeat-purchase rate, since a manufactured switching cost is the cheapest defense available. Capitalize on the opportunity a fixed rival location cannot reach. The frameworks do not invent the strategy; they confirm it and price the tactics that serve it.

Essential Knowledge Covered in Topic 4.4

Every essential knowledge statement for Topic 4.4 is covered above. The codes below let you check this page against your outline.

Section	Essential knowledge codes
The Five Forces Framework	4.4.A.1, 4.4.A.2
Competitive Rivalry and New Entrants	4.4.A.3, 4.4.A.4, 4.4.B.2, 4.4.B.3
Substitutes, Customer Power, and Supplier Power	4.4.A.5, 4.4.A.6, 4.4.A.7, 4.4.B.4, 4.4.B.5, 4.4.B.6
Reading the Ring as a Whole	4.4.B.1
What a SWOT Analysis Is	4.4.C.1, 4.4.C.2, 4.4.D.1, 4.4.D.2
Strengths and Weaknesses	4.4.C.3, 4.4.C.4
Opportunities and Threats	4.4.C.5, 4.4.C.6
Turning the Grid Into a Decision	4.4.D.3

Topic 4.4 covers 22 essential knowledge statements.

Worked Examples

Pricing a Price Match Before Making It

Compute the extra volume a price cut requires just to hold gross profit constant.

A national chain opens two blocks away at an everyday price of five dollars fifty. Steep Street Boba charges six dollars, with a variable cost of one dollar fifty per drink and October gross profit of fifteen thousand three hundred dollars on three thousand four hundred drinks. If the shop matched five dollars fifty, how many drinks would it have to sell to hold the same gross profit, and how much of an increase is that?

Current price: $6.00
Rival everyday price: $5.50
Variable cost per drink: $1.50
Current monthly gross profit: $15,300
Current monthly volume: 3,400 drinks

1. Find contribution per drink at the matched price
Cutting price cuts contribution one for one, because variable cost does not move.
$5.50 - 1.50 = 4.00$
2. Find the volume that holds gross profit constant
Divide the gross profit the shop is trying to protect by the new, smaller contribution.
$\frac{15,300}{4.00} = 3,825$
3. Compare that to current volume
Subtract to state the additional drinks the match would demand.
$3,825 - 3,400 = 425$
4. Express the requirement as a percentage
A percentage makes the size of the demand comparable to anything else the business is trying to grow.
$\frac{425}{3,400} = 0.125$

Check answer

Answer
3,825 drinks, an increase of 425 or 12.5%. Matching would require 3,825 drinks a month, four hundred twenty-five more than today and 12.5 percent more volume, just to hold gross profit level.

Why it matters
A fifty cent cut looks small next to a six dollar price and is enormous next to a four dollar fifty contribution. Price the reflex before taking it. A price war rewards whichever side can lose money longer, and a four-hundred-location chain always can, so the arithmetic argues for competing on something the rival cannot copy.

Measuring a Strategy Against a New Competitor

Combine a decline in one channel with growth in another to judge whether a strategy worked.

April is the rival chain's first full month open. Counter volume falls ten percent from the October figure of three thousand four hundred drinks. Events and the new trailer add five hundred forty drinks across three bookings. Every drink is counted at the six dollar average. Find total volume and revenue for April, and state what the two numbers together show.

October counter volume: 3,400 drinks
Counter decline: 10%
Event and trailer drinks: 540
Average price per drink: $6.00

1. Apply the decline to the counter channel only
The decline is specific to walk-in demand, so it must not be applied to the event channel.
$3,400 \times 0.90 = 3,060$
2. Add the event and trailer volume
Under this shop's convention, catered drinks are counted as drinks rather than reported on a separate revenue line.
$3,060 + 540 = 3,600$
3. Convert total volume to revenue
One average price covers both channels, which is what makes the addition in step two legitimate.
$3,600 \times 6.00 = 21,600$
4. Read the two channels against each other
Report the channel that fell and the channel that grew, because the average alone hides both.

Check answer

Answer
3,600 drinks and $21,600 of revenue. April totals 3,600 drinks and $21,600 of revenue, the shop's best April on record, even though counter volume fell by three hundred forty drinks.

Why it matters
Both halves are true at once: the counter got harder and the business got bigger. That is what a strategy built on a strength the rival cannot copy is supposed to produce, and it is why a SWOT response is judged by results in the cell it targeted rather than by the headline total alone.

Key Terms

Practice Questions

4 questions. Nothing here is recorded or scored.

Question 14.4.C.6, 4.4.D.3
Windlestraw Hitch Works
Sabina Vetter owns Windlestraw Hitch Works, a one-bay shop that installs trailer hitches and wiring harnesses on family vehicles. Customers pay one flat price per vehicle covering the hitch, the harness, and the labor to fit them, and most compare two or three shops online before they book. A customer who has paid a deposit to hold an appointment can cancel and take the job elsewhere at no charge up until the day the work starts. No single customer is more than a fraction of a percent of the shop's yearly installations, and a household buys a hitch once for a vehicle it already owns, so Sabina spends on local advertising each season to reach the next group of customers. A shop on the far side of town has begun advertising the same installation for 360 dollars against Windlestraw's 420, and Sabina is deciding whether to match that price. Her own installation numbers are in the table.
Figure | Amount Installation price | $420 Direct cost per installation | $180 Installations sold last year | 240 Rival shop's advertised installation price | $360 If Sabina matches the rival's 360-dollar price and her direct cost per installation stays where it is, how many more installations must Windlestraw sell in a year to hold last year's gross profit?
- A.About 80 more installations, roughly a 33 percent increase in installations sold.
- B.About 60 more installations, roughly a 25 percent increase in installations sold.
- C.About 40 more installations, roughly a 17 percent increase in installations sold.
- D.About 34 more installations, roughly a 14 percent increase in installations sold.
Check answerHide answer
Answer: A
A.
Correct. Gross profit per installation is price minus direct cost: 420 minus 180 is 240, and 240 installations at 240 dollars is 57,600 dollars of gross profit last year. Matching the rival leaves 360 minus 180, or 180 dollars per installation, so holding 57,600 dollars takes 57,600 divided by 180, which is 320 installations. That is 80 above last year's 240, an increase of about 33 percent. Pricing the reflex before taking it is the point of running the frameworks: matching is a response to a threat, and the arithmetic says the response has to be paid for with a third more vehicles through one bay, in a town where the number of households adding a hitch does not jump on command.
B.
This divides the lost gross profit by the old margin: 60 dollars given up on each of 240 installations is 14,400 dollars, and 14,400 divided by the old 240-dollar margin is 60 installations. That margin is gone the moment the price moves, and the replacement installations each carry 180 dollars, so it takes more of them than that.
C.
This holds revenue rather than gross profit: 420 times 240 is 100,800 dollars, and 100,800 divided by 360 is 280 installations. Revenue is not what the shop keeps. The 180 dollars of direct cost runs on every one of those extra installations, so revenue can be held while gross profit still falls.
D.
This matches the volume increase to the size of the price cut, since 60 dollars off 420 is about 14 percent. The cut lands entirely on the margin, because the direct cost per installation does not fall with the price, so the figure that has to be covered is the 25 percent drop in gross profit per installation, not the 14 percent drop in price.
Question 24.4.A.6, 4.4.B.5
Figure | Amount Installation price | $420 Direct cost per installation | $180 Installations sold last year | 240 Rival shop's advertised installation price | $360 Which of the following best describes the power Windlestraw's customers hold to push its installation price down?
- A.Strong, because a town this size leaves customers few installers to choose from.
- B.Weak, because no single customer is more than a fraction of a percent of yearly installations.
- C.Weak, because a household buys one hitch installation and then leaves the market for good.
- D.Strong, because a customer can cancel a paid deposit and book a rival shop at no charge.
Check answerHide answer
Answer: D
A.
This counts the sellers when the force counts the buyers. Few installers in one town would, if anything, hand Windlestraw more room on price rather than less, and even that does not hold here, since a shop on the far side of town is advertising the same installation for 60 dollars less.
B.
This reads one determinant alone. Customer power is shaped by the number of customers, what they cost to acquire, and their switching costs, and a crowd of small buyers does point toward weak power. Here the switching cost is what decides the case, because a customer who walks costs Windlestraw the whole job whatever share of yearly installations that customer represents.
C.
One purchase per household is the reason acquisition costs are high, and high acquisition costs point toward strong customer power rather than weak. A buyer exercises power at the moment of the purchase, and this buyer is comparing two or three shops right then.
D.
Correct. Customer power is the buyers' power to drive prices lower, and switching costs, the money and mental friction of changing the product or brand bought, are the piece that bites here. A refundable deposit up to the day the work starts sets that cost near zero, customers already compare shops online before booking, and a rival is advertising the same installation for 60 dollars less across town.
Question 34.4.C.3, 4.4.D.3
A specialty grain mill holds a patent on the milling process that gives its flour a texture competitors cannot legally reproduce. Sales have flattened because only two bakeries in its own city buy the flour. Which action best builds on the mill's strength?
- A.Price the flour below what nearby commodity mills charge in order to win local volume.
- B.Offer the flour in nearby cities so the patented texture reaches buyers who lack it.
- C.Move to the standard milling process larger mills run so that its costs match theirs.
- D.Wait for the two bakeries it supplies to grow so the flour reaches more customers.
Check answerHide answer
Answer: B
A.
This prices a differentiated product as though it were interchangeable. Intellectual property is what buys room to charge above the market, and cutting under commodity mills spends the advantage on a contest the mill has no cost position to win.
B.
Correct. Strengths are internal advantages, and intellectual property sits on that list beside brand recognition, product quality, and core competencies. Building on a strength means aiming it at the buyers who value it, and bakeries that cannot get this texture anywhere else are exactly those buyers. The patent travels to the next city; the two local accounts do not limit it.
C.
This trades away the one thing rivals cannot copy in order to chase a cost position larger mills already hold. Weaknesses are worth correcting where correction is affordable, and abandoning a protected process is the opposite of building on a strength.
D.
This waits on an external factor the mill does not control while the action open to it goes untaken. A SWOT is worth building only if each cell runs into something the business actually does.
Question 44.4.C.5, 4.4.D.3
A small commercial cleaning company serves office buildings in one business district. The largest cleaning contractor in that district has announced it will stop serving buildings under 20,000 square feet next year. Which action best capitalizes on the announcement?
- A.Cut its crew size to match a district that will be buying less office cleaning.
- B.Hold its current accounts unchanged and wait for the district to settle down.
- C.Bid for the cleaning work at the small buildings the contractor plans to drop.
- D.Raise prices on its current accounts by the share the district is losing.
Check answerHide answer
Answer: C
A.
This reads reduced competition as reduced demand. The small buildings still need cleaning next year; what leaves the district is the company that was doing it, and the work stays behind.
B.
This treats beyond our control as nothing to do about it. External names where a factor comes from, not whether a business can respond, and the whole purpose of listing an opportunity is to act on it.
C.
Correct. Opportunities are external factors beyond a business's control that may contribute to its success, and reduced competition is one of them. An opportunity is worth listing only if the business can reach it, and small buildings are the size this company already cleans, so the contractor's exit leaves a set of buyers with a live need and no incumbent.
D.
This overreads the exit as pricing power. One contractor leaving the small-building segment does not make this company the only choice, and the same opening that lets it bid for new work lets other cleaners bid for its accounts.

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10 common mistakes on 4.4

The wrong moves students actually make on these questions, why each one is wrong, and what to do instead. Part of the practice tier.

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Essential knowledge covered

4.4.A.1 · 4.4.A.2 · 4.4.A.3 · 4.4.A.4 · 4.4.A.5 · 4.4.A.6 · 4.4.A.7 · 4.4.B.1 · 4.4.B.2 · 4.4.B.3 · 4.4.B.4 · 4.4.B.5 · 4.4.B.6 · 4.4.C.1 · 4.4.C.2 · 4.4.C.3 · 4.4.C.4 · 4.4.C.5 · 4.4.C.6 · 4.4.D.1 · 4.4.D.2 · 4.4.D.3