Skip to content

ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Norvik Telecom sells mobile contracts with a 24-month term, free handset upgrades and a customer app holding family data plans. Customers who leave lose these benefits and must set up new arrangements. How do these features affect the threat of new entrants in the industry?

They raise barriers to entry. Contract terms, lost upgrades and data set-up create switching costs, so customers are reluctant to move. A new entrant would have to fund heavy incentives to attract them, which reduces the threat of new entrants.

  1. AThey raise barriers to entry because switching costs make it harder for entrants to win customersCorrect
  2. BThey lower barriers because they show customers are price sensitive
  3. CThey have no effect on new entrants, as they only affect rivalry among existing firms
  4. DThey raise the bargaining power of suppliers to the industry

Explanation

Switching costs lock customers in, so a new entrant must offer a big incentive to attract them, which raises the entry barrier. Option two misreads the effect, and the features are not about supplier power. They affect entrants as well as rivalry, so saying there is no effect is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Competitive forces shows your real accuracy, how long you take and where you lose marks.

Practise Competitive forcesFree diagnostic mock

More Competitive forces questions