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Abdm4223 lecture week 8 220612
ABDM4233 ENTREPRENEURSHIP Industry, Competitor & Market Analysis by Stephen OngPrincipal Lecturer (Specialist) Visiting Professor, Shenzhen
Elements of a Feasibility Analysis Industry and Product or Service Market Feasibility Feasibility Financial Feasibility
The 360° CUBE Pitch Six Posters in a 6 minute Investor Pitch SOCIAL MARKETINGPROBLEM & SALESVISION & OPERATIONS TEAMMISSION & KEY PARTNERSBUSINESS FINANCIAL MODEL MILESTONES
360° Business CUBE1. The Problem : How BIG is the problem?2. The Solution : Our Social Enterprise’s Vision & Mission3. The Business Model : Getting the JOB done for the Customer Segments4. Marketing & Sales (and Fundraising)5. The Team & Key Partners6. The Financial Plan : Goals and objectives, with a timeline (Milestones)
What is Industry Analysis? Industry An industry is a group of firms producing a similar product or service, such as airlines, fitness drinks, furniture, or electronic games. Industry Analysis Is business research that focuses on the potential of an industry. 5-5
Why is Industry Analysis Important? Importance • Once it is determined that a new venture is feasible in regard to theIndustry Analysis 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. 5-6
Three Key Questions When studying an industry, an entrepreneur must answer three questions before pursuing the idea of starting a firm. Question 1 Question 3 Is the industry Question 2 Are there positions inaccessible—in otherwords, is it is realistic the industry that Does the industry place for contain markets that avoid a new areripe some of the venture negative for innovation to enter? or are underserved? attributes of the industry as a whole?
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. 5-8
Techniques Available to Assess Industry AttractivenessAssessing Industry Attractiveness Study Environmental The Five Competitive and Business Trends Forces Model Politics Substitutes EconomicsSocio-Demographics New Entrants Technology Competitors Environment Suppliers Legal Buyers
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? 5-10
The Five Competitive Forces Model 1 of 3 Explanation of Porter’s Five Forces Model The five competitive forces model is a framework for understanding the structure of an industry. The model is composed of the forces that determine industry profitability. They help determine the average rate of return for the firms in an industry. 5-11
The Five Competitive Forces Model 2 of 3 Explanation of the Five Forces Model (continued) Each of the five forces impacts the average rate of return for the firms in an industry by applying pressure on industry profitability. Well managed firms try to position their firms in a way that avoids or diminishes these forces—in an attempt to beat the average rate of return of the industry. 5-12
Porter’s Five Competitive Forces Model 3 of 3 Potential Entrants Threat of New Entrants Bargaining Power Industry of Suppliers Bargaining Power Competitors of BuyersSuppliers Buyers Rivalry among existing firms Threat of Substitute Products or Services Substitutes
Threat of Substitutes 1 of 3 Threat of Substitutes The price that consumers are willing to pay for a product depends in part on the availability of substitute products. For example, there are few if any substitutes for prescription medicines, which is one of the reasons the pharmaceutical industry is so profitable. In contrast, when close substitutes for a product exist, industry profitability is suppressed, because consumers will opt out if the price gets too high. 5-14
Threat of Substitutes 2 of 3 Threat of Substitutes (continued) The extent to which substitutes suppress the profitability of an industry depends on the propensity for buyers to substitute between alternatives. This is why firms in an industry often offer their customers amenities to reduce the likelihood that they will switch to a substitute product, even in light of a price increase. 5-15
Threat of Substitutes 3 of 3 • This independently owned coffee shop doesn’t just sell coffee. • It also offers its patrons a convenient and pleasant place to meet, socialize, and study. • It provides these amenities to decrease the likelihood that its customers will “substitute” coffee at this shop for less expensive alternatives. 5-16
Threat of New Entrants 1 of 6 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. 5-17
Threat of New Entrants 2 of 6 Barriers to Entry Barrier to Entry Explanation Industries that are characterized by large economiesEconomies of of scale are difficult for new firms to enter, unless Scale they are willing to accept a cost disadvantage. Industries such as the soft drink industry that are Product characterized by firms with strong brands are difficult differentiation to break into without spending heavily on advertising. Capital The need to invest large amounts of money to gain entrance to an industry is another barrier to entry. requirements 5-18
Threat of New Entrants 3 of 6 Barriers to Entry (continued) Barrier to Entry Explanation Existing firms may have cost advantages not relatedCost advantages to size. For example, the existing firms in an industryindependent of may have purchased land when it was less expensive size than it is today. Access to Distribution channels are often hard to crack. This is particularly true in crowded markets, such as the distribution convenience store market. channels Some industries, such as broadcasting, require the Government granting of a license by a public authority to compete. and legal barriers 5-19
Threat of New Entrants 4 of 6 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 non-traditional barriers to entry to discourage new entrants, such as assembling a world-class management team that would be difficult for another company to replicate. 5-20
Threat of New Entrants 5 of 6 Nontraditional Barriers to Entry Barrier to Entry Explanation Strength of If a start-up puts together a world-class management team, it may give potential rivals pause in taking on management the start-up in its chosen industry. teamFirst-mover If a start-up pioneers an industry or a new concept within an industry, the name recognition the start-up advantage establishes may create a barrier to entry.Passion If the employees of a start-up are motivated by the unique culture of a start-up, and anticipate a largeof the management financial reward, this is a combination that cannot be team and replicated by larger firms. employees 5-21
Threat of New Entrants 6 of 6 Nontraditional Barriers to Entry (continued) Barrier to Entry Explanation If a start-up is able to construct a unique business Unique model and establish a network of relationships that makes the business model work, this set of advantagesbusiness model creates a barrier to entry. Internet Some Internet domain names are so “spot-on” that they give a start-up a meaningful leg up in terms of e-domain name commerce opportunities. If a start-up invents a new approach to an industry Inventing a and executes it in an exemplary fashion, these factorsnew approach create a barrier to entry for potential imitators.to an industry 5-22
Rivalry Among Existing Firms 1 of 3 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 5-23
Rivalry Among Existing Firms 2 of 3 Factors that determine the intensity of the rivalry among existing firms in an industry.Number & The more competitors there are, the more likely it balance of is that one or more will try to gain customers bycompetitors cutting its price. Degree of The degree to which products differ from one product to another affects industry rivalry. difference between products 5-24
Rivalry Among Existing Firms 3 of 3Factors that determine the intensity of the rivalry among existing firms in an industry (continued) Growth rate The competition among firms in a slow-growth of an industry is stronger than among those in fast- growth industries. industry Level of Firms that have high fixed costs must sell a higher volume of their product to reach the break-even fixed point than firms with low fixed costs. costs 5-25
Bargaining Power of Suppliers 1 of 3 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. 5-26
Bargaining Power of Suppliers 2 of 3Factors that have an impact on the ability of suppliers to exert pressure on buyersSupplier When there are only a few suppliers that supply aconcen- critical product to a large number of buyers, the supplier has an advantage. tration Switching costs are the fixed costs that buyersSwitch encounter when switching or changing from one supplier to another. If switching costs are high, a -ing buyer will be less likely to switch suppliers. costs 5-27
Bargaining Power of Suppliers 3 of 3Factors that have an impact on the ability of suppliers to exert pressure on buyers (continued) Attractive- Supplier power is enhanced if there are no ness of attractive substitutes for the product or services the supplier offers.substitutes The power of a supplier is enhanced if there is a Threat of credible possibility that the supplier might enter the buyer’s industry. forwardintegration 5-28
Bargaining Power of Buyers 1 of 3 Bargaining Power of Buyers Buyers can suppress the profitability of the industries from which they purchase by demanding price concessions or increases in quality. For example, the automobile industry is dominated by a handful of large companies that buy products from thousands of suppliers in different industries. This allows the automakers to suppress the profitability of the industries from which they buy by demanding price reductions. 5-29
Bargaining Power of Buyers 2 of 3Factors that have an impact on the ability of suppliers to exert pressure on buyers Buyer If there are only a few large buyers, and they buy from a large number of suppliers, they can group pressure the suppliers to lower costs and thusconcentra affect the profitability of the industries from which they buy. -tion The greater the importance of an item is to a Buyer’s buyer, the more sensitive the buyer will be to the price it pays. costs 5-30
Bargaining Power of Buyers 3 of 3 Factors that have an impact on the ability of buyers to exert pressure on suppliers (continued)Degree of The degree to which a supplier’s productstandardi differs from its competitors affects the buyer’s bargaining power.-zation ofsupplier’sproducts Threat of The power of buyers is enhanced if there is a backward credible threat that the buyer might enter the supplier’s industry.integration 5-31
First Application of the Five Forces Model 1 of 2 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. 5-32
First Application of the Five Forced Model 2 of 2Assessing Industry Attractiveness Using the Five Forces Model
Second Application of the Five Forces Model 1 of 2 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. 5-34
Second Application of the Five Forces Model 2 of 2Using the Five Forces Model to Pose Questions to Determine the Potential Success of a New Venture in an Industry 5-35
Second Application of the Five Forces Model Can achieve Higher Profits and Social Good? Maintain a Unique Position in the industry? Have a Superior Business Model that is hard to duplicate?
Industry Types and the Opportunities They Offer 1 of 3 Emerging Industries Industries in which standard operating procedures have yet to be developed. First-mover advantage Opportunity: Fragmented Industries Industries that are characterized by a large number of firms of approximately equal size. Opportunity: Consolidation 5-37
Industry Types and the Opportunities They Offer 2 of 3 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 5-38
Industry Types and the Opportunities They Offer 3 of 3 Global Industries Industries that are experiencing significant international sales. Multi-domestic and Opportunities: global strategies 5-39
Selecting a Market and Establishing a Position in the Market Important Questions That All Start-ups Must Ask In order to succeed, a new firm must address this important issue: Who are our customers and how will we appeal to them? A well-managed start-up approaches this query by following a three-step process: Segmenting the market Selecting a target market Establishing a unique position
The Process of Selecting a TargetMarket and Positioning Strategy
Market Segmentation • Involves studying a firm’s industry and determining the different target markets in that industry.Segmenting the • Markets can be segmented in Market a number of different ways, including - Product type - Geography (city, state, region) - Demographic variables
Example: Segmenting the Dance Studio Market by Customers ServedProfessional Dancing Adult Dancing Youth Dancing Serious Ballroom and other Ballet and other types dancers who aspire types of dancing of dancing for young to make a living for adults who want girls who want todancing in Broadway to learn dance for learn to dance to plays recreation and fun develop poise and grace
Selecting a Target Market • Once a firm has segmented the market, a target market must be chosen. • The market must be sufficientlyTarget Market attractive and the firm must have the capability to serve it. • By focusing on a clearly defined market, a firm can become an expert in that market and then be able to provide customers a high level of service.
Establishing a Unique Position 1 of 2 • After selecting a target market, the firm’s next step is to establish a “position” within the market thatPositioning differentiates it from its rivals. • A “position” is the part of a market that the firm is claiming as its own. • A firm establishes a unique position in its customers’ minds by drawing attention to two or three of the product’s attributes.
Establishing a Unique Position 2 of 2 Positioning (continued) Firms often develop a “tagline” to reinforce the position they have staked out in their market, or a phrase that is used consistently in a company’s literature and thus becomes associated with the company. An example is Nike’s familiar tagline, “Just do it.” The beauty of this simple three-word expression is that it applies equally to a 21-year-old triathlete and a 65-year-old mall walker. 11-47
Taglines—Developed to Reinforce a Firm’s Positioning Strategy
Who are you?1. Live on the Coke side of Life.2. Smarter together.3. Your potential. Our passion.4. Don’t do evil.5. Imagination at work.6. I’m lovin’ it.7. Leap ahead.8. Think different.9. Where dreams come true.10. Invent.11. It’s not the destination, it’s the journey.
Branding 1 of 4 Establishing a Brand A brand is the set of attributes — positive or negative—that people associate with a company. These attributes can be positive, such as trustworthy, dependable, or easy to deal with. Or they can be negative, such as cheap, unreliable, or difficult to deal with. The customer loyalty a company creates through its brand is one of its most valuable assets. Brand Management Some companies monitor the integrity of their brands through a program called “brand management.”
Branding 3 of 4 Establishing a Brand So how does a firm establish a brand? On a philosophical level, a firm must have meaning in its customers’ lives. It must create value—something for which customers are willing to pay. On a more practical level, brands are built through a number of techniques, including advertising, public relations, sponsorships, support of social causes, and good performance. A firm’s name, logo, Web site design, Facebook page, and even its letterhead are part of its brand. 11-52
Branding 4 of 4 Power of a Strong Brand Ultimately, a strong brand can be a very powerful asset for a firm. Over 50% of consumers say that a known and trusted brand is a reason to buy a product. A brand allows a company to charge a price for its products or services that is consistent with its image. A successful brand can increase the market value of a company by 50% to 75%. 11-53
Who are the Best?1. The way the world tells its story.2. Whatever it takes.3. United for a more equitable world.4. Harnessing the past. Enriching the future.5. From harm to home.6. Pioneering solutions, lifesaving results.7. Defending dignity. Fighting poverty.8. Our doctors go to places photographers don’t.9. It’s about saving lives.10. Changes the way information flows in the world.11. No good food should go to waste.
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.
Identifying CompetitorsTypes of Competitors New Ventures Face
Sources of Competitive Intelligence 1 of 3 Collecting Competitive Intelligence To complete a competitive analysis grid, a firm must first understand the strategies and behaviours 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. 5-57
Sources of Competitive Intelligence 2 of 3Ethical 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, andWeb sites.• Talk to customers about what motivated themto buy your product as opposed to your competitor’s 5-58
Sources of Competitive Intelligence 3 of 3 • Many companies attend trade shows to not only display their products, but to see what their competitors are up to. • This is a photo of the 2011 Consumer Electronics Trade Show in Las Vegas. 5-59
Completing a Competitive Analysis Grid Competitive Analysis Grid A tool for organizing the information a firm collects about its competitors A competitive analysis grid can help a firm see how it stacks up against its competitors, provide ideas for markets to pursue, and identify competitive its primary sources of advantage. 5-60
Competitive Analysis Grid for Element Bars 5-61
The 6 Ps of Marketing for New Ventures Product PricePromotion Place (or Marketing Mix distribution channel) Philantrophy People (or Customer (Do GOOD) Service) 11-62
Product Product Is the good or service a firm offers to its target market. The initial rollout is one of the most critical times in the marketing of a new product. All firms face the challenge that they are unknown and that it takes a leap of faith for the first customers to buy their products. Some start-ups meet this challenge by using reference accounts. 11-63
Core Product vs. Actual Product Core Product Actual ProductThe product itself, such The product plus all theas an antivirus software attributes that come program. with it such as quality level, features, design, packaging, and warranty. 11-64
Price Price Price is the amount of money consumers pay to buy a product. The price a company charges for its products sends an important message to its target market. For example, Oakley positions its sunglasses as innovative, state-of-the-art products that are both high quality and visually appealing. This position in the market suggests a premium price that Oakley charges. Most entrepreneurs use one of two methods to set the price for their products, as shown on the next slide. 11-65
Core Product vs. Actual Product Cost-Based Pricing Value-Based Pricing The list price is The list price isdetermined by adding a determined bymarkup percentage to a estimating what product’s cost. consumers are willing to pay for a product.
Promotion Promotion Refers to the activities the firm takes to communicate the merits of its product to its target market. There are several common activities that entrepreneurs use to promote their products and services. Advertising Advertising is making people aware of a product or service in hopes of persuading them to buy it.
Pluses and Minuses of AdvertisingPluses• Raise customer awareness of a product.• Explain a product’s comparative features and benefits.• Create associations between a product and a certain lifestyle.Minuses• Low credibility.• The possibility that a high percentage of people who see the ad will not be interested.• Message clutter.• Relative costliness compared to other forms of promotion.• Intrusiveness.
Steps Involved in Putting Together an Advertisement 11-69
Google AdWords and AdSense Program 1 of 2 AdWords Allows advertisers to buy keywords on the Google home page. Triggers text-based ads to the side of (and sometimes above) search results when the keyword is used. The program includes local, national, and international distribution. Advertisers pay a certain amount per click. Advertisers benefit because they are able to place their ads in front of people who are already searching for information about their product.
Google AdWords and AdSense Program 2 of 2 AdSense Allows advertisers to buy ads that will be shown on other Web sites instead of Google’s home page. Google selects sites of interest to the advertiser’s customers. Advertisers are charged on a pay-per-click or a per-thousand impression basis. Advertisers benefit because the content of the ad is often relevant to the Web site. Web site owners benefit by using the service to monetize their Web site.
Public Relations Public Relations One of the most cost effective ways to increase the awareness of the products of a company is through public relations. Public relations refer to efforts to establish and maintain a company’s image with the public. The major difference between public relations and advertising is that public relations is not paid for—directly.
Public Relations Techniques Traditional mediaPress release coverageSocial media Articles in industry coverage press and periodicals Blogging Monthly newsletter Civic, social, and community involvement 11-73
Social Media Social Media Consists primarily of blogging and connecting with customers and others through social networking sites like Facebook and Twitter. Blogging The idea behind blogs is that they familiarize people with a business and help build an emotional bond between a business and its customers. Facebook and Twitter Businesses establish a presence on Facebook and Twitter to build a community around their products and services. 11-74
Other Promotions Techniques Viral Marketing Guerrilla Marketing Facilitates and A low-budget approach encourages people to to marketing that reliespass along a marketing on ingenuity, message about a cleverness, and surprise particular product or rather than traditional service techniques 11-75
Place (or Distribution) Place Encompasses all the activities that move a firm’s product from its place of origin to the consumer. The first choice a firm has to make regarding distribution is whether to sell its products directly to consumers or through intermediaries (such as wholesalers and retailers). Within most industries, both choices are available, so the decision typically depends on how a firm believes its target market wants to buy its product. 11-76
Selling Direct Vs. Selling Through an Intermediary 1 of 2 Approach to Description Distribution Selling Many firms sell direct to the customer, maintaining Direct control of the distribution and sales process.Selling Through Other firms sell through intermediaries and pass off Intermediaries their products to wholesalers who place them in retail outlets to be sold. 11-77
Selling Direct Vs. Selling Through an Intermediary 2 of 2
Sales Process 1 of 3 Sales Process A firm’s sales process (or sales funnel) depicts the steps it goes through to identify prospects and close sales. A formal sales process involves a number of identifiable steps. Importance of Process Some companies simply wing it when it comes to sales, which isn’t recommended. It’s much better to have a well thought-out approach to prospecting customers and closing sales.
Sales Process 3 of 3 Usefulness of Sales Process Mapping the sales process in the manner shown on the previous slide provides a standard method for a firm’s employees to use, and provides a starting point for careful analysis and continuous improvement. Often, when companies lose an important sale they’ll find that an important step in the sales process was missed or mishandled. Having a well thought-out sales process, along with appropriate follow-through, can dramatically improve a company’s sales performance.
Further Reading Scarborough, Norman, M. 2011. Essentials of Entrepreneurship and Small Business Management. 6th edition. Pearson. Brooks, Arthur C. (2006) Social Entrepreneurship : A Modern Approach to Social Value Creation. Pearson Barringer, Bruce R. & Ireland, R. Duane, 2011 Entrepreneurship – Successfully launching new ventures 4th edition, Pearson. Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011. Entrepreneurship and Small Business. 3rd Asia Pacific edition. John Wiley.