Business Strategy

Explain the important barriers to entry in an industry as discussed in Chapter 2. Provide unique, real world examples of each. (Chapter 2)

In Chapter 2, the book discusses important barriers to entry. It states that these barriers are economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, and cost disadvantages independent of scale. These barriers are significant for many reasons and apply to many different industries in society.

Economies of scale happens when a company decides to produce an item and extends the production cost of said item over the quantity it produces. When a company manufactures a large number of products, the price of the item decreases because the cost is being distributed over the quantity produced. Because the price decreases, the company ends up saving money and will be able to utilize the excess funds in another area of the business. An example of a company that heavily applies economies of scale to their every day business practice, is Procter and Gamble (P&G). They mainly focus on producing goods that consumers would use daily such as paper towels, laundry detergent, etc. P&G owns many different brands that manufacture the goods they require at a high volume. Because of this high volume of production, P&G can sell their products for cheaper prices than other competitors. This not only saves the consumer money, but it also saves P&G money as well.

When a company is striving for product differentiation, they usually end up spending massive quantities of revenue in order to compete against already established organizations’ goods. Product differentiation requires large sums of money to be expended since a company is trying to gain the loyalty of customers who are and or have previously bought competitors products. This concept of product differentiation causes a company to try to produce a product that will not only attract customers, but gain their...