Final answer:
The Rivalry Strategy Tool is used to understand the intensity of rivalry within an industry based on market power, product similarity, entry barriers, and competition bases. Supplier power also affects business strategies, impacting cost and profit. Correct market selection and accounting for competitive advantage are crucial to the success of business strategy development.
Step-by-step explanation:
The intensity of rivalry within an industry can be assessed on a spectrum from high, medium, to low, using the Rivalry Strategy Tool. This considers the level of market power each firm holds, the uniqueness of products amongst competitors, the barriers to entry for new firms, and the bases on which firms compete—such as price, advertising, or product differentiation. A high intensity of rivalry often indicates fierce competition where products are similar, market power is distributed fairly evenly, entry barriers are low, and competition occurs aggressively on price and other factors.
As for supplier power, it too can be high, medium, or low within an industry. High supplier power suggests that suppliers can exert significant influence on the market, possibly due to a lack of alternatives for the businesses or the unique value of the supplied materials. Supplier power impacts business strategy by affecting cost structures and profit potentials.
Market selection is crucial for a firm's strategy. The right choice of industries and markets can allow a firm to capitalize on its strengths and mitigate risks. For instance, entering a market with low entry barriers and differentiated products can offer a new firm a sustainable competitive advantage. Conversely, neglecting to correctly identify and choose markets may lead to misallocated resources and strategic missteps.
Lastly, considering how to gain and sustain a competitive advantage is imperative for the success of business strategy development. This involves not just understanding current market dynamics but also predicting changes and innovating to stay ahead. It can determine long-term profitability and survival in a competitive landscape.