Industry and competitor analysis

What do we learn?

v What is the industry analysis and its purpose.

  Ø  What is industry analysis?

·         Industry: a group of firms producing a similar product or service.

·         Industry analysis: business research that focuses on the potential of an industry.

·         Competitor analysis:

o   detailed evaluation of a firm’s competitors.

o   Position is important at both company level and the product or service level.

o   Determines how the company is situated relative.

·         Industry trends:

o   Environtmental Trends : economic trends, social trends, technological advances, and political and regulatory changes are the most important environtmental trends.

o   Business trends:  other trends affect industries are not environtmental but important to mention.

v 5 competitive force model.

    Ø  Framework enterpreneurs use to understand an industry’s structure. Compromised determine industry profitability.

    Ø  Affects the average rate of return by applying pressure on industry profitably.

    Ø   5 force model:

1.      Threat of substitues:

·         Industries are more attractive when threat of substitutes is low.

·         Products or services from other industries can’t easily serve as substitues for the products or service being made and sold in the focal firm’s industry.

2.      Threat of new entrants:

·         Industries are more attractive when threat of entry is low.

·         Competitors cannot easily enter the industry and successfully copy to generate profits.

·         Number of ways that firms can kep the number of new entrants low  (barrier to entry).

·         6 major resources:

1.      Economies of scale: characterized by large economies of scale (occur when mass- producing a product ub a lower average cost).

2.      Product differentiation: characterized by firms with strong brands.

3.      Capital requirments: the need to invest large amounts of money to gain entrance to an industry.

4.      Cost advantages independent of size: cost advantages that is not related to size that are not available to new entrants (grounded in the firm’s history).

5.      Access to distribution channels: often hard to track, practicularly true in crowded market.

6.      Government and legal barriers: require the granting of license by a public authority.

3.      Rivalry among existing firms:

·         The major determinant of industry profitably is the level of competition among the firms already competing in the industry.

·         4 primary factors:

1.      Number and balance of competitors: one or more competitors will try to gain customers by cutting prices.

2.      Degree of difference between products: the degree which products differ from one producer to another.

3.      Growth rate of an industry: competition among firms in a slow growth industry (stronger than among those fast growth industries).

4.      Level of fixed costs: firms with high fixed costs must sell a higher volume of their product to reach the break even poin that firms with low fixed costs.

4.      Bargaining power of suppliers:

·         Industries are more attractive when the bargaining power of the suppliers are low.

·         Suppliers can suppress the profitability of the industries to witch they sell by raising prices or reducing the quality.

·         4 factors:

1.      Suppliers concentration: only a few suppliers to provide a critical product to a large number of buyers.

2.      Switching costs: fixed costs that buyers encounter when switching or changing from one supplier to another.

3.      Attractiveness of subtitutes: supplliers power is enchanced if there are no attractive substitutes that suppliers offer.

4.      Threat of forward integration: the power of supplier is enchanced if there is a credible possibility that the supplier might enter the buyer’s industry.

5.      Bargaining power of buyers:

·         Industries are more attractive when the bargaining power of buyers is low.

·         Buyers can suppress the profitability of the industries from which they purchase by demanding price concessions or increases in quality.

·         4 factors:

1.      Buyer group concentration: buyers are concentrated.

2.      Buyer’s costs: the greater the importance of an item is to a buyer, the more sensitive the buyer will be to the price.

3.      Degree of standardization of supplier’s products: the degree to which a suppliers product differs from its competitors.

4.      Threat of backward integration: the power of a buyer ins enchanced if there is a credible threat that the buyer might enter the suppliers industries.

v Value created by using 5 forces model.

    Ø 2 ways to use  the 5 forces model:

1.      To help a firm determine whether it should enter a practicular industry.

2.      Whether it can carve out an attractive position in the industry.

v Types of primary industries and opportunities offered.

    Ø  5 types of primary industries:

1.      Emerging industries:

·         New industries in which standards operating procedures have yet to be developed.

·         First-mover advantage: insurmountable advantage gained by the first company to establish a significant position in a new market.

2.      Fragmented industries:

·         Characterized by a large number of firms of approximately equal size.

·         Geographical roll-up strategy: one firms starts acquiring similar firms that are located in different geographical areas.

3.      Mautre industries:

·         Expiriencing a slow or no increase in demand, has numerous repeat rather than new customers.

·         Limited product innovation.

4.      Declining industries:

·         An industry or a part of an industry that is experiencing a reduction in demand.

·         3 strategies:

1.      Leadership strategy: firm tries to become the dominant player in the industry.

2.      Niche strategy: focuses on a narrow segment of the industry.

3.      Cost reduction strategy: accomplish through achieving lower costs.

5.      Global industries:

·         Experiencing a significant international sales.

·         2 common strategies:

1.      Multidomestic strategy: compete for market share on a country-by-country basis (vary their product or service offerings to meet the demands).

2.      Global strategy: same basic approach in all foreign market.

v Purpose of a competitor analysis and competitive analysis grid.

    Ø  Competitor analysis:

·         detailed analysis of a firm’s competition.

·         Helps firm understand the positions of its major competitors snd the opportunities that are available.

    Ø  Purposes:

·         Identifying competitors:

¨      3 challenges:

1.      Direct competitors: offer products or services that are identical or highly similar.

2.      Indirect competitors: offer close substitutes to the product the firm completing the analysis sells.

3.      Future competitors: not yet directed or indirect competitors but could move into one of these roles at any time.

·         Sources of competitive intelligence:

¨      The information that is gathered by a firm to learn about its competitors.

    Ø  Completing a competitive analysis grid:

·         Tool for organizing the information  firm collects about its competitors.