industry, Industry Analysis, Why is Industry Analysis Important? How Industry and Firm-Level Factors Affect Performance, Techniques Available to Assess Industry Attractiveness, Studying Industry Trends

1. Entrepreneurship and small business:
Industry and Competitor Analysis
Muhammad Shafiq
forshaf@gmail.com
http://www.slideshare.net/forshaf
References:
• Entrepreneurship by Bruce R. Barringer
•Marketing Strategy: A Decision-Focused Approach by Orville C Walker
•Strategic Management by Fred R David
•Entrepreneurship by Hisrich

2. Industry and Competitor Analysis
Industry and Competitor Analysis

3. Example!

4. What is Industry Analysis?
• Industry
• An industry is a group of firms producing a similar product or
service, such as airlines, drinks, furniture, or electronic games.
• Industry Analysis
• A market assessment tool designed to provide a business with an
idea of the complexity of a particular industry. Industry analysis
involves reviewing the economic, political and market factors that
influence the way the industry develops. Major factors can include
the power wielded by suppliers and buyers, the condition of
competitors, and the likelihood of new market entrants.

5. Why is Industry Analysis Important?
Industry Analysis
Importance
• Once it is determined that a new
venture is feasible in regard to the
industry and market in which it
will compete, a more in-depth
analysis is needed to learn the ins
and outs of the industry.
• The analysis helps a firm determine
if the target market it identified
during feasibility analysis is
favorable for a new firm.

6. Key Questions
To develop a sound strategic plan for an existing or a new business it is necessary to
understand the industry in which the business will operate and the competitive forces within
that industry. Questions to be answered include the following:
 Is the industry accessible—in other words, is it a realistic place for a new venture to enter?
 What is the current size and what are the major trends in the industry?
 What are the main competitive forces?
 Who are the competitors and what are their relative strengths?

7. How Industry and Firm-Level Factors Affect Performance
• Firm-Level Factors
• Include a firm’s assets, products, culture, teamwork among
its employees, reputation, and other resources.
• Industry-Level Factors
• Include threat of new entrants, rivalry among existing firms,
bargaining power of buyers, and related factors.
• Conclusion
• In various studies, researchers have found that from 8% to
30% of the variation in firm profitability is directly
attributable to the industry in which a firm competes.

8. Techniques Available to Assess Industry Attractiveness
Study Environmental
and Business Trends
The Five Competitive
Forces Model
Assessing Industry Attractiveness
Industry Life Cycle

9. Studying Industry Trends
• Environmental Trends
• Include economic trends, social trends, technological advances, and
political and regulatory changes.
• For example, industries that sell products to seniors are benefiting
by the aging of the population.
• Business Trends
• Other trends that impact an industry.
• For example, are profit margins in the industry increasing or
falling? Is innovation accelerating or waning? Are input costs going
up or down?

10. Porter's Five Forces Analysis
• It is an outside-in
business strategy tool
that is used to make an
analysis of the
attractiveness (value...)
of an industry structure
developed by Michael
E. Porter of Harvard
Business School in
1979.

11. Threat of Substitute Products
• The threat of substitute products increases when:
• Buyers face few switching costs.
• The substitute product’s price is lower.
• Substitute product’s quality and performance are equal to or greater
than the existing product.
• For example, there are few if any substitutes for prescription
medicines, which is one of the reasons the pharmaceutical industry
is so profitable.
• Differentiated industry products that are valued by customers
reduce this threat.

12.  Firms often offer their customers amenities to reduce the
likelihood that they will switch to a substitute product, even
in light of a price increase.
•A customer could easily get
a cup of coffee cheaper at
one of Starbuck’s competitors.
• To decrease the likelihood of
this, Starbucks offers high-
quality fresh coffee, good
service, and a pleasant
atmosphere.
• Starbucks has therefore
reduced the threat of
substitutes.

13. Threat of New Entrants
• Threat of New Entrants
• If the firms in an industry are highly profitable, the industry
becomes a magnet to new entrants.
• Unless something is done to stop this, the competition in the
industry will increase, and average industry profitability will
decline.
• Firms in an industry try to keep the number of new entrants low
by erecting barriers to entry.
• A barrier to entry is a condition that creates a disincentive for a new
firm to enter an industry.

14. Barrier to Entry Explanation
Economies of Scale
Product
differentiation
Capital
requirements
Barriers to Entry
Industries that are characterized by large economies of scale are
difficult for new firms to enter, unless they are willing to accept
a cost disadvantage.
Industries such as the soft drink industry that are characterized
by firms with strong brands are difficult to break into without
spending heavily on advertising.
The need to invest large amounts of money to gain entrance to
an industry is another barrier to entry.
Cost advantages
independent of size
Access to distribution
channels
Government and
legal barriers
Existing firm may have cost advantages not related to size. For
example, the existing firms in an industry may have purchased
land when it was less expensive than it is today.
Distribution channels are often hard to crack. This is
particularly true in crowded markets, such as the convenience
store market.
Some industries, such as broadcasting, require the granting of a
license by a public authority to compete.

15. • Non Traditional Barriers to Entry
• It is difficult for start-ups to execute barriers to entry that are
expensive, such as economies of scale, because money is
usually tight.
• Start-ups have to rely on nontraditional barriers to entry to
discourage new entrants, such as assembling a world-class
management team that would be difficult for another company
to replicate.

16. Barrier to Entry Explanation
Nontraditional Barriers to Entry
Strength of
management team
If a start-up puts together a world-class management
team, it may give potential rivals pause in taking on
the start-up in its chosen industry.
First-mover
advantage
If a start-up pioneers an industry or a new concept
within an industry, the name recognition the start-up
establishes may create a barrier to entry.
Passion of the
management team
and employees
If the employees of a start-up are motivated by the
unique culture of a start-up, and anticipate large
financial reward, this is a combination that cannot be
replicated by larger firms.

17. Barrier to Entry Explanation
Nontraditional Barriers to Entry (continued)
Unique Business
Model
Inventing a new
approach to an
industry
If a start-up is able to construct a unique business
model and establish a network of relationships that
makes the business model work, this set of advantages
creates a barrier to entry.
If a start-up invents a new approach to an industry
and executes it in an exemplary fashion, these factors
create a barrier to entry for potential imitators.
Internet Domain
Name
Some Internet domain names are so “spot-on” that
they give a start-up a meaningful leg up in terms of e-
commerce opportunities.

18. Rivalry Among Existing Firms
• Rivalry Among Existing Firms
• In most industries, the major determinant of industry profitability
is the level of competition among existing firms.
• Some industries are fiercely competitive, to the point where prices
are pushed below the level of costs, and industry-wide losses occur.
• In other industries, competition is much less intense and price
competition is subdued.

19. Factors that determine the intensity of the rivalry among
existing firms in an industry.
Number and
balance of
competitors
Degree of
difference
between products
The more competitors there are, the more likely it
is that one or more will try to gain customers by
cutting its price.
The degree to which products differ from one
product to another affects industry rivalry.

20. Factors that determine the intensity of the rivalry among existing
firms in an industry
Growth rate of an
industry
Level of fixed
costs
The competition among firms in a slow-growth
industry is stronger than among those in fast-
growth industries.
Firms that have high fixed costs must sell a higher
volume of their product to reach the break-even
point than firms with low fixed costs.

21. Bargaining Power of Suppliers
• Bargaining Power of Suppliers
• Suppliers can suppress the profitability of the industries to which
they sell by raising prices or reducing the quality of the components
they provide.
• If a supplier reduces the quality of the components it supplies, the
quality of the finished product will suffer, and the manufacturer will
eventually have to lower its price.
• If the suppliers are powerful relative to the firms in the industry to
which they sell, industry profitability can suffer.

22. Factors that have an impact on the ability of suppliers to
exert pressure on buyers
Supplier
concentration
Switching costs
Switching costs are the fixed costs that buyers
encounter when switching or changing from one
supplier to another. If switching costs are high, a
buyer will be less likely to switch suppliers.
When they are only a few suppliers that supply a
critical product to a large number of buyers, the
supplier has an advantage.

23. Factors that have an impact on the ability of suppliers to exert
pressure on buyers
Attractiveness of
substitutes
Threat of
forward
integration
The power of a supplier is enhanced if there is a
credible possibility that the supplier might enter
the buyer’s industry.
Supplier power is enhanced if there are no
attractive substitutes for the product or services
the supplier offers.

24. Bargaining Power of Buyers
• Buyer power increases when:
• Buyers are large and few in number.
• Buyers purchase a large portion of an industry’s total output.
Wal*Mart is a powerful organization and bargains hard with its
suppliers to obtain better prices
• Buyers can pose threat to integrate backward into the sellers’
industry.
• Buyer has full information.
• Monopsony..?

25. Applications of the Five Forces Model
• First Application of the Model
• The five forces model can be used to assess the attractiveness of an industry by
determining the level of threat to industry profitability for each of the forces.
• If a firm fills out the form shown on the next slide and several of the threats to
industry profitability are high, the firm may want to reconsider entering the
industry or think carefully about the position it would occupy.

26. First Application of the Five Forced Model

27. Low entry barriers
Interpreting Industry Analyses
Unattractive
Industry
Suppliers and buyers
have strong positions
Strong threats from
substitute products
Intense rivalry among
competitors
Low profit potential

28. Attractive
Industry
High entry barriers
Suppliers and buyers
have weak positions
Few threats from
substitute products
Moderate rivalry
among competitors High profit potential

29. Applications of the Five Forces Model
• Second Application of the Model
• The second way a new firm can apply the five forces model to help determine
whether it should enter an industry is by using the model to answer several key
questions.
• The questions are shown in the figure on the next slide, and help a firm project
the potential success of a new venture in a particular industry.

30. Second Application of the Five Forces Model

31. Industry Life Cycle
• Reflects the changes that take place in an industry over time.
1. Birth stage: firms seek to develop a winning technology.
• For example, in the personal computer industry, this stage
would have been in the early-to-mid 1980s as companies
explored the possibilities of selling these devices.
2. Growth stage: Product gains customer acceptance and grows
rapidly.
• New firms enter industry, production improves, distributors
emerge.
3. Shakeout stage: The stage between growth and maturity.
• Competitor rivalry increases.
• Least efficient firms fail and leave industry.

32. When should I join an industry?
• Joining an industry in the “Birth” or “Growth” stage has the
greatest potential to grow YET there are chances that the
business you joined will fail.
• The best time to join an industry is in the Shakeout stage
(Point X). The business concept is proven and markets are
pioneered. This is when the strong companies strengthen
their businesses and sales explode.
4. Maturity stage: most customers have bought the product,
growth is slow.
• Relationships between suppliers, distributors more stable.
• Usually, industry dominated by a few, large firms.
5. Decline stage: falling demand for the product.
• Prices fall, weaker firms leave the industry.

33. 33

34. 34

35. • Emerging Industries
• Industries in which standard operating procedures have yet to be
developed.
• Opportunity: First-mover advantage
• Fragmented Industries
• Industries that are characterized by a large number of firms of
approximately equal size.
• Opportunity: Consolidation, geographic roll-up strategy, in which one firm
starts acquiring similar firms that are located in different geographic areas
Industry Types and the Opportunities They Offer

36. • Mature Industries
• Industries that are experiencing slow or no increase in
demand.
• Opportunities: Process innovation and after-sale service innovation
• Declining Industries
• Industries that are experiencing a reduction in demand.
• Opportunities: Leadership, establishing a niche market, and
pursuing a cost reduction strategy
• Global Industries
• Industries that are experiencing significant international
sales.
• Opportunities: Multidomestic and global strategies
Industry Types and the Opportunities They Offer

37. Competitor Analysis
• What is a Competitor Analysis?
• A competitor analysis is a detailed analysis of a firm’s
competition.
• It helps a firm understand the positions of its major
competitors and the opportunities that are available.
• A competitive analysis grid is a tool for organizing the
information a firm collects about its competitors.

38. Identifying Competitors
Types of Competitors New Ventures Face

39. Sources of Competitive Intelligence
• Collecting Competitive Intelligence
• To complete a competitive analysis grid, a firm must first understand the
strategies and behaviors of its competitors.
• The information that is gathered by a firm to learn about its competitors is
referred to as competitive intelligence.
• A new venture should take care that it collects competitive intelligence in a
professional and ethical manner.

40. Sources of Competitive Intelligence
Ethical ways to obtain information about competitors
• Attend conferences and trade shows.
• Purchase competitors’ products.
• Study competitors’Web sites.
• Set up Google and Yahoo! e-mail alerts.
• Read industry-related books, magazines, and Web sites.
• Talk to customers about what motivated them to buy your
product as opposed to your competitor’s product.

41. Sources of Competitive Intelligence
• Many companies attend
trade shows to not only
display their products,
but to see what their
competitors are up to.

42. 42
Industrial/Business Espionage
• An illegal and unethical way to gain access to information
about a company’s plans, products, clients or trade secrets.
It involves obtaining information that is considered secret or
confidential without the permission of the holder of the
information.

43. Competitive Profile Matrix (CPM)- It compares the
company with direct competitors and check whether company
is doing well as compared to competitors or not.
 Competitive profile matrix is essential tool used in
strategic management process, it contain all the important
critical success factors of industry. Success factor can vary
form industry to industry, every industry consider
different success factor, all the companies in CPM are
measured on same scale by considering the same success
factor.

44. The company’s current market share of 82.3% in the black
oil market and 59.4% share in the white oil market.
The company is the only public sector entity in Pakistan that
has been competing effectively with three foreign
multinationals, Shell, Caltex and Total.
The Pakistani Government holds approximately 54% stake in
Pakistan State Oil.
The company has retail coverage of over 3,800 outlets,
representing 80% participation in total industry network.
PSO is the market leader in Pakistan’s
energy sector. The company has the
largest network of retail outlets to
serve the automotive sector and is
the major fuel supplier to aviation,
railways, power projects, armed
forces and agriculture sector.

46. The External Factor Evaluation (EFE) Matrix-
It is used to summarize and evaluate economic, social,
cultural, demographic, environmental, political, legal,
technological, and competitive information.

47. i. List factors: The first step is to gather a list of external
factors. Divide factors into two groups: opportunities and
threats.
ii. Assign weights: Assign a weight to each factor. The value
of each weight should be between 0 and 1 (or
alternatively between 0 and 100 if you use the 0 to 100
scale). Zero means the factor is not important. One or
hundred means that the factor is the most influential and
critical one. The total value of all weights together
should equal 1 or 100.
iii. Rate factors: Assign a rating to each factor. Rating should
be between 1 and 4. Rating indicates how effective the
firm’s current strategies respond to the factor.
How to develop EFE Matrix?

48. 1 = the response is poor.
2 = the response is below average.
3 = above average.
4 = superior.
Weights are industry-specific. Ratings are company-
specific.
• Multiply weights by ratings: Multiply each factor weight
with its rating. This will calculate the weighted score for
each factor.
• Total all weighted scores: Add all weighted scores for
each factor. This will calculate the total weighted score
for the company.

49. • Highest possible weighted score for the organization is 4.0;
the lowest, 1.0. Average = 2.5
Total weighted score of 4.0 =
Organization response is outstanding to threats &
opportunities.
Total weighted score of 1.0 =
Firm’s strategies not capitalizing on opportunities or
avoiding threats

51. Internal Factor Evaluation Matrix
Five Step Process:
1. List key internal factors (10-20)
 Strengths & Weaknesses
2. Assign weight to each (0 to 1.0)
 Sum of all weights = 1.0
3. Assign 1-4 rating to each factor
 Firm’s current strategies response to the factor
4. Multiply each factor’s weight by its rating
 Produces a weighted score
5. Sum the weighted scores for each
 Determines the total weighted score for the organization.

53. Competitive Strategies
Strategies for dealing with Competition
• Aggressive Strategies
• Defensive Strategies
• Follower Strategies

54. Aggressive Strategies
• Frontal attack
• Encirclement attack
• Bypass (Leapfrog) attack
• Flanker Attack
• Guerilla warfare

55. Frontal Attack
• Frontal attack is one of the marketing
strategies inspired by war tactics. Frontal
attack involves a head on attack on the
competitor by matching the competitor in
all aspects – product, price, place
promotion.
• In a pure frontal attack, the attacker
matches its opponent’s product, advertising,
price, and distribution. A modified frontal
attack, such as cutting price vis-a-vis
convinces the market that it’s product is
equal to the leaders product.
• Examples: Zong, Olpers

56. Frontal Attack is recommended when:
the market is relatively homogeneous
brand equity is low
customer loyalty is low
products are poorly differentiated
the attacker enjoys strong resources

57. Encirclement Attack
• This is a broader but subtle offensive strategy. It
involves encircling the targeted competitor. This is
done by introducing a range of products that are
similar to the competitor’s products. Each product
will liberate some market share from the
competitor, with the objective of leaving it
weakened, demoralized, and in a state of siege.
• It involves launching a grand offensive on several
fronts and finding the soft spot to enter the
enemy’s territory.
• Omore (against Walls); Toyota (against Ford & GM);
Q-Mobile (against Nokia)

58. Encirclement is recommended when:
the market is loosely segmented
some segments are not being served well by the competitor
the attacker has strong product development resources
the attacker has enough resources to operate in multiple segments
simultaneously

59. Leapfrog Strategy/Bypass Strategy
 This strategy involves bypassing the
enemy’s forces altogether. In the
business arena, this involves either
developing new technologies, or
creating new business models.
 This strategy undertakes a
challenger bypassing its opposition
totally and capturing the
competitor’s clients in one rapid
action.
 This is a revolutionary strategy that
re-writes the rules of the game.

60. Leapfroging is possible when:
A contender has the ability of budding new technologies
or creating new trade models.
To be victorious, the challenger must have a exclusive
and inimitable and game-changing knowledge and
technology that is superior and better in every way
possible to that of all conventional competitors.
Further, the challenger must have the creation and
development engineering capabilities to revolve that
technology into a tempting offering.

61. Flanker Attack
• Avoiding a head-on clash by targeting a segment where
competitor focus or commitment is weak
• The idea is to catch the competitor by surprise and
establishing a “beach-head” by the time the competitor
wakes up and reacts.
• Usually this offensive strategy is used by a company that
does not have overwhelming superiority, but may have
an advantage in one particular area.
• E.g. Blackberry, Face Book

62. Types of Flanker Attack
• Geographical flanking- Occurs when a firm attacks differentareas
within the world or countrywhere competitors are nonexistentor
not very strong.
• Segmented flanking- Potentiallycan be more powerful than
geographical flanking attacksbecause they satisfy market needsthe
competitor has ignored.
Example- In the mid 1970's Xerox owned eighty-eight percent of the plain-
paper copier market however, almost ten years later the Japanese
basedCanon Copier took over half of Xerox's market. The main reason
Canontook over such a large portion of Xerox's market was by use of the
flankingstrategy. Canon focused on the small size copier market that could
notafford Xerox's larger copiers. This attack was successful because it put
theattackers strength against the defenders weakness.

63. Flanker Attack is recommended when:
• the market is well-segmented
• there are some segments that are not well served
by the existing competitors
• the attacker has moderate or limited resources

64. Guerrilla Marketing
• Guerilla warfare basically involves winning small victories that
can over time amount to alarge gain in market share
• Guerrilla challenger uses both conventional and unconventional
means of attack. These include selective price cuts, intense
promotional blitzes, unexpected and unconventional interactive
promotion and use of surprise & hit-and-run to attack in locations &
at times where conditions are most favorable.
• Consumers are targeted in unexpected places. The objective of
guerrilla marketing is to create a unique, engaging and thought-
provoking concept to generate buzz, and consequently turn viral.
• This attack works because it is very unconventional which makes
it difficult for thedefender to counter-attack, and because they
are aimed at small, weak, and unprotectedmarket positions.
• E.g. Road shows, In-mall events, unique promotion tactics etc.

66. TARGET
COMPETITOR
Flanking attack
Frontal
attack
Encirclement strategy
Leapfrog strategy
CHALLENGER
Guerrilla
attacks

67. Defensive Strategies
• Committed Defender/Position defense
• Defensive Flank/Mobile Defence
• Pre-emptive
• Contraction
• Counter-parry

68. Committed Defender/Position Defense
• An old seasoned player in the
market, with strong commitment of
resources.
• Does not involve investing into
product development or
innovations, but protecting and
sustaining the market share.

69.  This involves the defense of a fortified position.
 This tends to be a weak defense because you become a
“sitting duck”. It can lead to a siege situation in which time
is on the side of the attacker, that is, as time goes by the
defender gets weaker, while the attacker gets stronger.
 In a business context, this involves setting up fortifications
such as barriers to market entry around a product, brand,
product line, market, or market segment. This could include
increasing brand equity, customer satisfaction, customer
loyalty, or repeat purchase rate.
 It could also include exclusive distribution contracts, patent
protection, market monopoly, or government protected
monopoly status. It is best used in homogeneous markets
where the defender has dominant market position and
potential attackers have very limited resources.

70. Defensive Flanker/Mobile Defence
• This involves constantly shifting resources and developing
new strategies and tactics.
• involves the re-deployment of resources to deter a flank attack.
The defender strengthens its flank by deploying more
resources.
• The disadvantage of this defense is that it can distract the
company from its primary objective and divert resources away
from where they are needed most.
• In business terms, this involves the introduction of new
products, product lines, or brands, the defensive re-positioning
of existing products, or additional promotional activity in a
market niche.
• This defense requires a very flexible organization with strong
marketing, entrepreneurial, product development, and
marketing research skills.

71. Pre-emptive
• “Attack is the best defense”
• Muscle flexing
• Signaling a strong whiplash to competitors
• “We cannot direct the wind, but we can adjust the sails.”
• Preemptive marketing builds professional relationships
with quality-minded consumers before they need your
services.This introduces your company and builds loyalty so
that consumers don’t look any further.

72. Contraction Defence
• A competitive strategy in which a large organisation
withdraws from a market or market segment in which it is
not strong in order to concentrate on another market or
other segments in which it has greater strength; also
referred to as Strategic Withdrawal.
• Contraction strategies include divestiture, liquidation and
retrenchment.

73. • Example- TATA Motors has both Passenger and Commercial
Vehicles in India. While it is the undisputed leader in
commercial vehicles, its passenger vehicles division in India
is running at quite a loss. At the same time the commercial
vehicle space is heating up with foreign players such as MAN
and Benz launching their trucks and also domestic players
like Mahindra making a foray into the segment. So as a
contraction defense strategy, TATA Motors may choose to
withdraw from the passenger vehicles market and
concentrate all its resources in the commercial vehicles
segment to maintain its leadership position.

74. Counter-parry
• Popular strategy for multinationals
• Respond to attack by attacking competitor in another
country
• Ex.: Kodak—When Fuji attacked Kodak in the U.S., Kodak
retaliated by attacking Fuji in Japan.
• Goodyear also attacked Michelin in Europe as response to
attack in U.S.

75. • Counterfeiter: To counterfeit means to imitate something.
Counterfeit products are fake replicas of the real product.
Counterfeit products are often produced with the intent to
take advantage of the superior value of the imitated
product. Counterfeit products tend to have fake company
logos and brands. In the case of goods, it results in patent
infringement or trademark infringement. Counterfeit
consumer products have a reputation for being lower
quality (sometimes not working at all) and may even include
toxic elements.
Market Follower Strategies

76. • Cloner: Makes similar, copy cat products.
• Content Follower/Nicher: Remains confined to a limited
segment/niche considered unattractive by competitors.