lect ch 05
TRANSCRIPT
Jon C. StuartCEO, Big Guy, Head Honcho, Benevolent & All Knowing
Exalted Ruler
theNMB IncIf we don’t know we
make it up.
What do You Know About Your Competition
Industry and Competitor
Analysis Bruce R. Barringer
R. Duane Ireland
Chapter 5
What is Industry Analysis?• Industry • A group of firms producing a
similar product or service, such as airlines, fitness drinks, furniture, or electronic games.
• Industry Analysis • Business research that focuses on
the potential of an industry.
• In-depth detail understanding
• Economic • Social • Technological • Political • Legal &
Regulatory • International
• Profit margins
• Innovation accelerating or waning
• Input costs rising or falling?
Environmental Trends
Business Trends
Study Environmental & Business Trends
Is it an accessible Industry that is realistic for a new venture to enter?
Question 1Are there potential positions in the industry that avoid some of the negative attributes of the industry as a whole?
Question 3Does it have markets that are ripe for innovation and are there underserved market(s)?
Question 2
Key Questions
• Threat of new entrants• Rivalry among existing
firms• Bargaining power of
buyers• Other related factors
Industry Level Factors
• Assets• Products• Culture• Employee teamwork• Reputation• Other resource
Firm Level Factors
How Industry & Firm-Level Factors Affect Performance
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.
http://www.census.gov/eos/www/naics/
Industry Information?
Study Environmental
& Business Trends
Michael Porter’s Five
Forces Competitive
Model
Techniques Available to Assess Industry Attractiveness
Threat of Substitutes
Threat of New
Entrants
Bargaining Power
of Purchasers
Bargaining Power
of Suppliers
Porter’s Five Forces Competitive Model
Rivalry Among Existing
Competitors
Five Competitive Forces Model
• Framework for understanding the structure of an industry.
• Forces that determine industry profitability.
• Helps determine the average ROI for the firms in an industry.
• Help determine what forces impacts ROI by applying pressure on industry profitability?
• Try to position their firm in a way that avoids or diminishes these forces
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.
Factors that determine the
competitive intensity
Rivalry Among Existing
Competitors
Degree of difference between products HighLow
Growth rate of an industry HighLow
Level of fixed costs HighLow
Number & balance of competitors ManyFew
• Industry are highly profitable, the industry becomes a magnet to new entrants.
• Desire to stop this, the increase competition, & average industry profitability decline.
• Seek to keep the number of new entrants low by erecting barriers to entry.
Threat of New
Entrants
Threat of New
Entrants
A condition that creates a disincentive for a new firm to enter an industry.
Seek to erect barriers to entry
Nontraditional/Other Barriers to Entry
Access to Capital
Assembling a World Class Management Team
Passion of Management & Employees for
Success
Economies of Scale
Capital requirements
Government and legal barriers
Access to distribution
channels
Cost advantages
Product Differentation
What are Barrier to Entry?
Evaluating theThreat of New Entrants
Factors that have an impact on the ability of suppliers to exert pressure on buyers
Attractiveness of substitutes
Threat of forward
integration
Supplier concentration
Switching costs
Bargaining Power
of Suppliers
Bargaining Power of Suppliers• Suppress the profitability of the industries
to which they sell by raising prices or reducing the quality of the components they provide.
• 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.
• When they are powerful relative to the firms in the industry to which they sell, industry profitability can suffer.
Degree of standardization of
supplier’s products
Threat of backward
integration
Buyer group concentration
Buyer’s costs
Bargaining Power
of Purchasers
Buyers demanding price concessions or increases in quality.
Bargaining Power of Buyers• Suppress the profitability of the industries
from which they purchase by demanding price concessions or increases in quality.
• Automobile industry is dominated by a handful of large companies that buy products from thousands of suppliers in different industries.
• Allows the automakers to suppress the profitability of the industries from which they buy by demanding price reductions.
Five Forces Model Assessment Tool
• Assess the attractiveness of an industry by determining the level of threat to industry profitability for each of the forces.
• Threats to industry profitability are high, the firm may want to reconsider entering the industry
• Think carefully about the position it would occupy.
Assessment Tool Industry Attractiveness Using
the Five Forces Model
Industry Assessment Model Tool
• Help determine whether firm should enter an industry is by using the model to answer several key questions.
• The questions and decision tree help a firm project the potential success of a new venture in a particular industry.
To any of these
questions increases the likelihood of
new venture’s success
Yes
No
Are their areas in which we can avoid
or diminish the factors that suppress industry profitability?
Is there a unique position in the
industry that avoids or diminishes the
factors that suppress industry profitability?
Is there a superior business model that industry incumbents
would find hard to duplicate?
Reconsider new venture
No
Is the industry a
realistic place for a new venture
Industry Assessment Modeling Tool
Yes
To all three questions indicates
reconsidering the new venture.
Industry Opportunity
Emerging First-mover advantage
Fragmented Consolidation
Mature Process innovation and after-sale service innovation
DecliningLeadership, establishing a niche market, & pursuing a cost reduction strategy
Global Multi-domestic and global strategies
Industry Types & Opportunities
Competitor Analysis• Detailed analysis of a firm’s
competition.
• Understand the positions of its major competitors
• Understand the opportunities that are available.
• Competitive Analysis Grid -tool for organizing the competitive information
Business offering the same or similar products/services
Businesses that do not currently offer competitive products/service but could in the future.
Businesses that offer products/services that are considered close substitutes
Direct Competitors
Future Competitors
Indirect Competitors
Identifying Competitors
Competitive Intelligence
• Need to understand competitors:
• Strategies
• Behaviors
• Continual process.
• Collect professional & ethical manner.
• 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
Ethical ways to obtain information about competitors
Sources of Competitive Intelligence
• See how it stacks up against its competitors.
• Provide ideas for markets to pursue.
• Identify its primary sources of competitive advantage.
Tool for organizing the information a firm collects about its competitors.
Competitive Analysis Grid
Competitive Analysis Matrix For Your Biz/Product
Your Biz Comp A Comp B Comp C
Primary Markets Local Retail
Local Competitive
Nursery
Organic Gardener
Internet Shopping Gardener
Channel Position
producer/retailer 30/70
produce/ retailer 30/70
Reseller high end retail
consumer
Reseller eCommerce
consumer
Key Sales Data
$1-30M sales; $750-$800,000 sales; $350-$400,000 $2.5M- $3.0 M
Product Lines Broad Product Line Mix
Broad Product Line Mix
Narrow Product Line Mix
Broad and Deep Product Line Mix
Buying Habitstrust of product;
personal connection
trust of product; price sensitive
shopper
local Organic Grown/
Not Price Sensitive
reputation; Internet savvy
delivery
Market Size and Share
200,000 share 5%
200,000 share 2-4%
20,000 share 5%
2M - 5M share 1/5%
Competitive Comparison
YOUR BIZ Comp. A Comp. B Comp. CBenefits Features Base 3 2 3
Pricing Base 4 3 3Sales Size/Mix Base 2 3 5
Market Strategy Base 3 5 4
Business Model Base 3 3 4
This is a relative comparison from your perspective of how your target CUSTOMERS might compare your business to your competition
1-Much Worse 2-Worse 3-Equal 4-Better 5-Much Better
Competitive Analysis Grid for Element Bars