ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Kestrel Airlines dominates a regional route. Its board is considering announcing that it will cut fares sharply and add flights immediately if any rival begins service, and it has spare aircraft to do so. Which statement best describes the purpose of this strategy within five forces analysis?

It raises the expected retaliation barrier. By credibly signalling that it will cut fares and add flights if anyone enters, backed by spare aircraft, Kestrel makes entry look unprofitable, which discourages potential entrants from starting service on the route.

AIt raises the expected retaliation barrier, discouraging potential entrantsCorrect
BIt reduces supplier power by diversifying aircraft sources
CIt lowers buyers' switching costs to attract loyal customers
DIt creates a substitute product to defend against entry

Explanation

Expected retaliation by incumbents is a recognised barrier to entry. A credible threat, backed by spare capacity, makes entry look unprofitable. The strategy does not alter supplier sources, and cutting fares does not aim to change switching costs.

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