Chapter 2 industry analysis
This presentation is the property of its rightful owner.
Sponsored Links
1 / 28

Chapter 2: Industry Analysis PowerPoint PPT Presentation


  • 76 Views
  • Uploaded on
  • Presentation posted in: General

Chapter 2: Industry Analysis. Team 4: Peter Hogue, Cameron Lloyd, Breann Flores, Jonathon Jordan, . Business Environment of a Firm. Defined as: All of the external influences that affect its decisions and performance.

Download Presentation

Chapter 2: Industry Analysis

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Chapter 2 industry analysis

Chapter 2: Industry Analysis

  • Team 4: Peter Hogue, Cameron Lloyd, Breann Flores, Jonathon Jordan,


Business environment of a firm

Business Environment of a Firm

  • Defined as: All of the external influences that affect its decisions and performance.

  • There are a large number of the influences so it helps to categorize them.


Classifying environmental influences

Classifying Environmental Influences

  • 2 ways of classifying influences

    • Source: political, economic, social and technological factors (PEST analysis)

    • Proximity: “Micro Environment” can be distinguished from the “Macro Environment”


Pest analysis

PEST Analysis

  • 4 factors examined in a PEST Analysis

    • Political: How the government restricts your product and how they select who is allowed to do what

    • Economic: How the current economy affects business. (America’s recent recession)

    • Social: How people view your product. Safety, fashion, etc.

    • Technological: Are you staying ahead of the curve?


Core of a firm s business environment

Core of a Firm’s Business Environment

  • Formed by relationship with three sets of players

    • Customers: Firm must understand its customers in order to create value for them.

    • Suppliers: Firm must understand suppliers and manage relationships with suppliers

    • Competitors: Firm must understand competitors, because their profitability depends on it.


What determines the level of profit in an industry

What determines the level of profit in an industry?

  • To have profit in a firm, value has to be created for the customer.

  • But, value doesn’t directly equal profit.

  • Consumer surplus vs. producer surplus


Profits earned by the firms in an industry are determined by

Profits earned by the firms in an industry are determined by

  • The value of the product to customers

  • The intensity of competition

  • The bargaining power of the producers in relation to their suppliers


How the industry s structure determines the level of profitability

How the industry’s structure determines the level of profitability

  • Some industries earn high rates of profit

  • Others earn much lower rates of profit

  • Small markets vs. large markets


Forecasting industry profitability

Forecasting Industry Profitability

  • Three stages to predict future profitability of an industry

    • 1.) examine current levels of competition and profitability

    • 2.) Identify trends that are changing in the industry

    • 3.) Identify how these structural changes will affect the five forces of competition and resulting profitability of the industry


Threat of entry

Threat of Entry

  • “ The threat of entry rather than actual entry may be sufficient to ensure that established firms constrain their prices to the competitive level”

  • Contestability

    • Sunk costs

    • “hit-and-run” entry

  • Barrier to entry

    • Capital requirements

    • Absolute cost advantage

    • Product differentiation

    • Government and legal barriers

    • Retaliation


  • Bargaining power of buyers

    Bargaining Power of Buyers

    • Input market firms

    • Output markets firms

      • Buyers price sensitivity

      • Bargaining power


    Industry rivalry

    Industry Rivalry

    • Concentration

      • Concentration ratio

  • Diversity of competitors

  • Product differentiation

  • Excess capacity and exit barriers

  • Cost conditions


  • Threat of substitutes

    Threat of Substitutes

    • Buyer propensity to substitutes

    • Relative prices and performance substitutes

    • Cigarettes example

    • Wind farms vs. Natural gas


    Porter s five forces

    Porter’s Five Forces


    Porter s five forces1

    Porter’s Five Forces

    • Horizontal Competition

      • Competition from substitutes

      • Competition from entrants

      • Competition from established rivals

    • Vertical Competition

      • Power of suppliers

      • Power of buyers


    Competition from substitutes

    Competition from Substitutes

    • Availability of substitutes

      • Ex. Coke and Pepsi

    • Absence of close substitutes

      • Ex. Gasoline

      • Ex. Cigarettes

    • Impact of the internet

      • Ex. Travel agencies

      • Ex. Telecommunications


    Competition from entrants

    Competition from Entrants

    • Capital requirements

    • Economies of scale

    • Absolute cost advantage

    • Product differentiation

    • Access to distributionchannels

    • Government and legal barriers

    • Retaliation by established producers


    Competition from established rivals

    Competition from Established Rivals

    • Concentration

    • Diversity of competitors

    • Product differentiation

    • Excess capacity and exit barriers

    • Cost conditions


    Power of suppliers

    Power of Suppliers

    • Bargaining Power

      • Supplier

      • Buyer

    • Complex component manufacturers

      • Ex. Disk drives


    Power of buyers

    Power of Buyers

    • Buyers’ Price Sensitivity

      • Cost of product relative to total cost

      • Product differentiation

      • Competition between buyers


    Power of buyers1

    Power of Buyers

    • Relative Bargaining Power

      • Size and concentration of buyers relative to producers

      • Buyers’ switching costs

      • Buyers’ information

      • Buyers’ ability to backward integrate


    Identifying key success factors

    Identifying Key Success Factors

    To survive and prosper in an industry, a firm must meet two criteria: first it must supply what customers want to buy; second it must survive competition.


    Identifying key success factors1

    Identifying Key Success Factors

    • Who are our customers and what do they want?

    • What does the firm need to do to survive competition?


    Chapter 2 industry analysis

    Key Success Factors

    • Combining the industry competition analysis with what the customers want we can discover what the key success factors are


    Chapter 2 industry analysis

    Prerequisites for success

    What do customers want?

    How does the firm survive competition?

    • Analysis of competition

    • What drives competition?

    • What are the main dimensions of competition

    • How intense is competition?

    • How can we obtain a superior competitive position?

    • Analysis of demand

    • Who are our customers?

    • What do they want?

    Key Success Factors


    Caterpillar view on customers

    Caterpillar View on Customers

    • http://www.youtube.com/watch?v=zrnPbZVlLQI


    Chapter 2 industry analysis

    Questions?


  • Login