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Intra-Industry Analysis Game theory Competitor Analysis Segmentation Strategic Groups OUTLINE The Contribution of Game Theory to Competitive Analysis Main value: Framing strategic decisions as interactions between competitors Predicting outcomes of competitive situations involving a few

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Intra-Industry Analysis

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Intra industry analysis l.jpg

Intra-Industry Analysis

  • Game theory

  • Competitor Analysis

  • Segmentation

  • Strategic Groups

OUTLINE


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The Contribution of Game Theory

to Competitive Analysis

  • Main value:

  • Framing strategic decisions as interactions between competitors

  • Predicting outcomes of competitive situations involving a few

  • players

  • Some key concepts:

  • Competition and Cooperation—Game theory can show conditions where cooperation is more advantageous than competition {P.D.}

  • Deterrence—changing the payoffs in the game in order to deter

  • a competitor from certain actions

  • Commitment—irrevokable deployments of resources that

  • give creditability to threats

  • Signalling—communication to influence a competitor’s decision

Problems of game theory:

Useful in explaining past competitive behavior—weak in predicting

future competitive behavior. {SCENARIOS}

What’s the problem? — Multitude of models, outcomes highly sensitive

to small changes in assumptions


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Complementors & Competitors

  • Complementor: customer values your product MORE when they have the other player’s product than when they have yours alone.

  • Competitor: customer values your product LESS when they have the other player’s product than when they have yours alone. May cooperate to develop market & infrastructure.


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From Thinking Strategically

  • Prisoner’s Dilemma: Competitor pricing, MAD, Employer/Union, Hostage Dilemma.

  • To lead or not to lead: If in lead, can imitate as soon as follower’s intentions are known, or when follower’s success as been assessed.

  • Look before you leap - use your bargaining power when you’ve got it.

  • Mix your plays

  • Opponent’s choices & actions tell you information Monty Hall’s Let’s Make a Deal.

  • Pride & irrationality can’t be ignored - people.

  • Moving first & being intransigent.

  • Moving second after seeing what your opponent did.

  • 2 kinds of interaction: sequential & simultaneous.

  • For sequential, Rule #1: look forward & reason backward. Draw a game tree.

  • For simultaneous, build table, check for dominant strategies, (Rule #2: if you have one, use it!), then dominated strategies (Rule #3: eliminate dominated strategies), Rule #4: look for an equilibrium, a pair of strategies in which each player’s action is the best response to the others.

Thinking Strategically, Dixit & Nalebuff, 1991


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Newcleaner’s game

  • If Newcleaners (N) enters and Fastcleaners accomodates, N makes $100k.

  • If N enters and Fastcleaners starts price war, N loses $200k.

  • What should N do?

Thinking Strategically, Dixit & Nalebuff, 1991, p. 38


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Newcleaner’s game map

Thinking Strategically, Dixit & Nalebuff, 1991, p. 38


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Larry’s choice

  • Larry, Mo, & Curly are in a duel and will shoot once in that order for 2 rounds.

  • Outcome ranking: sole survivor, then one of 2 survivors, then noone gets killed, then (& worst) you get killed.

  • Larry hits 30% of time, Mo 80%, Curly 100%.

  • What should Larry do?

Thinking Strategically, Dixit & Nalebuff, 1991, p. 329


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David & Goliath’s choices.

  • David produces 1 slingshot per quarter, Goliath 2, & no flexibility in output.

  • Once exit industry, can’t come back in.

Thinking Strategically, Dixit & Nalebuff, 1991, p. 340


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Thinking Strategically, Dixit & Nalebuff, 1991, p.343


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What Price a Dollar?

  • Bidding proceeds at 5 cent increments.

  • Highest bidder gets the dollar.

  • The highest AND the second highest bidder must pay their bid.

Thinking Strategically, Dixit & Nalebuff, 1991, p. 349


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From Co-opetition

  • Players: when you enter a game, you change it. Get paid to play.

  • Added Value: Size of the pie when you are in MINUS size of pie when you are out. Red & Black card pair = $100.

  • Rules: w/ customers, suppliers, government sets many, changing. Most Favored Customer clause.

  • Tactics: Actions to your benefit.

  • Scope: Boundaries of the game.

Co-opetition, Brandenburger & Nalebuff, 1996


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Value Net

Co-opetition, Brandenburger & Nalebuff, 1996


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University Value Net

Co-opetition, Brandenburger & Nalebuff, 1996


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Co-opetition, Brandenburger & Nalebuff, 1996


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A Framework for Competitor Analysis

OBJECTIVES

What are competitor’s current goals?

Is performance meeting there goals?

How are its goals likely to change?

STRATEGY

How is the firm competing?

  • PREDICTIONS

  • What strategy changes

  • will the competitor

  • initiate?

  • How will the competitor

  • respond to our strategic

  • initiatives?

ASSUMPTIONS

What assumptions does the competitor

hold about the industry and itself?

RESOURCES & CAPABILITIES

What are the competitors’ key

strengths and weaknesses?

{Sources of information}


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Segmentation Analysis: The Principal Stages

  • Identify key variables

    and categories.

  • Construct a segmentation matrix

  • Analyze segment attractiveness

  • Identify KSFs in each segment

  • Analyze benefits of

    broad vs. narrow scope.

Identify segmentation variables

Reduce to 2 or 3 variables

Identify discrete categories for

each variable

Potential for economies

of scope across segments

Similarity of KSFs

Product differentiation benefits

of segment focus


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*Size

*Technical

sophistication

*OEM/replacement

The Basis for Segmentation: Customer and Product Characteristics

Industrial buyers

Characteristics

of the Buyers

*Demographics

*Lifestyle

*Purchase occasion

Household buyers

*Size

*Distributor/broker

*Exclusive/

nonexclusive

*General/special

list

Distribution channel

Opportunities for

Differentiation

Geographical

location

*Physical size

*Price level

*Product features

*Technology design

*Inputs used (e.g. raw materials)

*Performance characteristics

*Pre-sales & post-sales services

Characteristics

of the Product


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Segmenting the European Metal Can Industry


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Segmenting the World Automobile Market

REGION

US& Canada W.Europe E.Europe Asia Lat America Australia Africa

Luxury Cars

Full-size sedans

Mid-size sedans

Small sedans

Station wagons

Passenger minivans

Sports cars

Sport-utility

Pick-up trucks


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Vertical Segmentation & Industry Profit Pools

—The US Auto Industry

25%

20

Service & repair

Leasing

Operating margin

15

Warranty

Aftermarket

parts

Auto manufacturing

10

Auto rental

Auto insurance

Auto loans

New car dealers

5

Used car dealers

0

Gasoline

100%

0

Share of industry revenue


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SEGMENT

Segmentation and Key Success Factors in the U.S. Bicycle Industry

KEY SUCCESS FACTORS

* Low-costs through global sourcing of components

& low-wage assembly.

* Supply contract with major retailer.

Leading competitors: Taiwanese & Chinese assemblers,

some U.S manufacturers, e.g. Murray Ohio, Huffy

Low price bicycles sold primarily

through department and discount

stores, mainly under the retailer’s

own brand (e.g. Sears’ “Free Spirit”);

*Cost efficiency through large scale operation and

either low wages or automated manufacturing.

*Reputation for quality (durability, reliability) through

effective marketing to dealers and/or consumers.

* International marketing & distribution.

Leading competitors: Raleigh, Giant, Peugeot, Fuji

Medium-priced bicycles sold

primarily under manufacturer’s brand

name and distributed mainly through

specialist bicycles stores;

Focus vs. Broad, Branding

*Quality of components and assembly, Innovation in

design (e.g. minimizing weight and wind resistance).

*Reputation (e.g. through success in racing, through

effective brand management).

*Strong dealer relations.

High-priced bicycles for enthusiasts.

Children’s bicycles (and tricycles) sold

primarily through toy retailers (discount

toy stores, department stores, and

specialist toy stores).

Similar to low-price bicycle segment.


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Strategic Group Analysis

A strategic group is a group of firms in an industry following the same or similar strategy.

  • Identifying strategic groups:

    • Identify principal strategic

  • variables which distinguish

  • firms.

    • Position each firm in relation

  • to these variables.

    • Identify clusters.


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Strategic Groups in the World Automobile Industry

Broad

GLOBAL, BROAD-LINE

PRODUCERS

e.g., GM, Ford, Toyota, Nissan, Honda, VW, Daimler Chrysler

REGIONALLY-FOCUSED BROAD-LINE PRODUCERS

e.g. Fiat, PSA, Renault,

GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Volvo, Subaru, Isuzu, Suzuki, Saab, Hyundai

NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS

e.g. Tofas, Kia, Proton, Maruti

PRODUCT

RANGE

LUXURY CAR MANUFACTURERS

e.g., Jaguar, Rolls Royce, BMW

NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e.g., Bristol (U.K.), Classic Roadsters (U.S.), Morgan (U.K.)

PERFORMANCE CAR PRODUCERS e.g., Porsche, Maserati, Lotus

Narrow

National

GEOGRAPHICAL SCOPE

Global


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Strategic Groups Within the World Petroleum Industry

INTERNATIONAL

UPSTREAM

COMPANIES

INTEGRATED OIL MAJORS

INTERNATIONAL

UPSTREAM,

REGIONALLY

FOCUSED

DOWNSTREAM

Premier

Oil

Enterprise

Kuwait Petroleum

PDVSA

INTEGRATED

DOMESTIC

OIL COMPANIES

  • NATIONAL

  • PRODUCTION

  • COMPANIES

Iran

NOC

00.51.01.52.0

Statoil

BP-Amoco

Exxon

-Mobil

Vertical Balance

INTEGRATED

INTERNATIONAL

MAJORS

Pemex

Petronas

Chevron

Royal Dutch

-Shell Gp.

Phillips

ENI

Elf-Fina-Total

Repsol

YPF

Indian Oil

Phillips

Texaco

Petrobras

ENI

INTERNATIONAL

DOWNSTREAM

OIL COMPANIES

Repsol

Nippon

E.g. Neste

Tosco

01020304050607080

NATIONALLY-FOCUSED

DOWNSTREAM COMPANIES

Geographical Scope


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