Conducting an industry analysis (1)

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Conducting an industry analysis (1)

  1. 1. Conducting anIndustry Analysis
  2. 2. Seven Questions for Industry Analysis1. What are the industry dominant economic traits?2. What competitive forces are at work in the industry and how strong are they?3. What are the forces of change in the industry and what impact will they have?4. Which companies are in the strongest/weakest competitive position?5. Who’s likely to make what competitive moves next?6. What key factors will determine success or failure?7. How attractive is the industry in terms of its prospects for above average profitability?
  3. 3. Q1. What are the industry dominant economic traits?Market size (Small markets don’t attract big fish)Scope of competitive rivalryMarket/industry growth rate (life cycle) – Fast growth breeds new entry; slowdowns lead to increased competition.Number of rivals and their sizeNumber of buyers and their sizeLevel of backward and forward integrationTechnological change (rate and scope)Level of differentiation between firms’ productsOpportunities for economies of scaleEase of entry and exitCapital requirements
  4. 4. Q1: Industry’s Dominant Economic Traits Market Product – Size – Differentiation – Scope – Potential for – Growth rate economies of scale – Growth cycle – Learning effects – # & size of – Entry / exit costs competitors – Technological – Distribution channels change – Structure Forward Integration Backward Integration
  5. 5. Q2. What competitive forces are at work in the industry and how strong are they? Porter’s Five Forces. Forces influencing industry and competitive advantage: – Competitive Intensity (Rivalry Among Sellers) – Barriers to Entry (Potential for New Entrants) – Bargaining Power of Suppliers – Bargaining Power of Customers – Threat of Substitute Products pg. 33 in Applegate
  6. 6. Q2. What competitive forces are at work in the industry and how strong are they? The rivalry among sellers – Greater the rivalry, lower the avg. profitability – What causes rivalry to be strong or weak? # of competitors Size / capability of competitors Financial status of competitors Slow growth Cost of exit barriers Switching costs for customers Variability in demand
  7. 7. Q2. What competitive forces are at work in the industry and how strong are they? Potential new entrants – Barriers to entry Economies of scale Learning curve effects Customer loyalty / brand preferences Resource / investment Access to distribution Regulation Patents, proprietary technology – Level of industry profits
  8. 8. Q2. What competitive forces are at work in the industry and how strong are they? The relative power of suppliers – Importance of component – Switching costs – Backward integration threats – Substitutes The relative power of buyers – Switching costs – % market share / size – # of suppliers – Product standardization – Potential for backward integration
  9. 9. Q2. What competitive forces are at work in the industry and how strong are they? Substitute products – Place a ceiling on prices and profits of industry – Invite comparison shopping – E.g., eyeglasses vs. contact lenses – E.g., sugar vs. artificial sweeteners
  10. 10. Q3. What are the forces of change in theindustry and what impact will they have? The most dominant Common Driving Forces forces the cause the Changes in long term industry growth rate industry to change Changes in who buy the products and for what reason are called driving Product innovation forces Technological change Marketing innovation Task 1 - identify the Increasing globalization driving forces Regulatory changes Changing societal concerns, attitudes Task 2 - assessing and lifestyles their impact on the industry (few are Environmental scanning important, generally)
  11. 11. Q4. Which companies are in thestrongest/weakest competitive position? Using the strategic group mapping: two dimensional representation according to the competitive characteristics of the competitors in the industry Axes should not be correlated Size of circles proportional to combined sales The closer the circles, the stronger the rivalry See http://i.i.com.com/cnwk.1d/html/b/305,1,Competitive and http://www.quickmba.com/strategy/pest/ for more information. characteristics Competitive Product line/merchandise mix
  12. 12. Q5. Who’s likely to make what competitive moves next?In order to Identify competitorsoutmaneuver your strategiescompetition you have Evaluate who are theto evaluate the major players-- nowcompetitors’ future Who will be the majormoves. players Evaluate what the major players are going to do
  13. 13. Q6. What key factors will determine success or failure?Key success factors (KSF) are crucialelements that lead to success.What are they now? What will they be?In beer production KSF can be brewingskillsIn retail apparel KSF can be low cost,superior service, superior designIn your industry, KSF=????
  14. 14. Q7. How attractive is the industry in terms ofits prospects for above average profitability?Growth potentialDriving forcesEntry/exitStability of demandCompetitive forcesRisk and uncertaintyCompetition and itsimpact on the industry’sfuture
  15. 15. 7 Questions1. What are the industry dominant economic traits?2. What competitive forces are at work in the industry and how strong are they?3. What are the forces of change in the industry and what impact will they have?
  16. 16. 7 Questions4. Which companies are in the strongest/weakest competitive position?5. Who’s likely to make what competitive moves next?6. What key factors will determine success or failure?7. How attractive is the industry in terms of its prospects for above average profitability?

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