This document outlines seven questions to consider when conducting an industry analysis: 1) What are the dominant economic traits of the industry? 2) What competitive forces are at work and how strong are they? 3) What forces are driving change in the industry and what impact will they have? 4) Which companies are strongest/weakest? 5) What competitive moves might companies make next? 6) What factors will determine success or failure? 7) How attractive is the industry's potential for above-average profits? Answering these questions provides an understanding of the industry's dynamics.

1. Conducting an
Industry Analysis

2. Seven Questions for Industry Analysis
1. 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. Q1. What are the industry
dominant economic traits?
Market size (Small markets don’t attract big fish)
Scope of competitive rivalry
Market/industry growth rate (life cycle)
– Fast growth breeds new entry; slowdowns lead to increased
competition.
Number of rivals and their size
Number of buyers and their size
Level of backward and forward integration
Technological change (rate and scope)
Level of differentiation between firms’ products
Opportunities for economies of scale
Ease of entry and exit
Capital requirements

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. 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. 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. 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. 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. 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. Q3. What are the forces of change in the
industry 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. Q4. Which companies are in the
strongest/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. Q5. Who’s likely to make what
competitive moves next?
In order to Identify competitors
outmaneuver your strategies
competition you have Evaluate who are the
to evaluate the major players-- now
competitors’ future Who will be the major
moves. players
Evaluate what the
major players are
going to do

13. Q6. What key factors will determine
success or failure?
Key success factors (KSF) are crucial
elements that lead to success.
What are they now? What will they be?
In beer production KSF can be brewing
skills
In retail apparel KSF can be low cost,
superior service, superior design
In your industry, KSF=????

14. Q7. How attractive is the industry in terms of
its prospects for above average profitability?
Growth potential
Driving forces
Entry/exit
Stability of demand
Competitive forces
Risk and uncertainty
Competition and its
impact on the industry’s
future

15. 7 Questions
1. 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. 7 Questions
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?