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Conducting an Industry Analysis. Seven Questions for Industry Analysis. 1. What are the industry dominant economic traits? 2. What competitive forces are at work in the industry and how strong are they? 3. What are the forces of change in the industry and what impact will they have?

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seven questions for industry analysis
Seven Questions for Industry Analysis

1. What are the industry dominant economic traits?

2. What competitive forces are at work in the industry and how strong are they?

3. What are the forces of change in the industry and what impact will they have?

4. Which companies are in the strongest/weakest competitive position?

5. Who’s likely to make what competitive moves next?

6. What key factors will determine success or failure?

7. How attractive is the industry in terms of its prospects for above average profitability?

q1 what are the industry dominant economic traits
Q1. What are the industry dominant economic traits?
  • Market size (Small markets don’t attract big fish)
  • Scope of competitive rivalry
  • Market/industry growth rate (life cycle)
    • Fast growth breeds new entry; slowdowns lead to increased competition.
  • Number of rivals and their size
  • Number of buyers and their size
  • Level of backward and forward integration
  • Technological change (rate and scope)
  • Level of differentiation between firms’ products
  • Opportunities for economies of scale
  • Ease of entry and exit
  • Capital requirements
q1 industry s dominant economic traits
Market

Size

Scope

Growth rate

Growth cycle

# & size of competitors

Distribution channels

Structure

Forward Integration

Backward Integration

Product

Differentiation

Potential for economies of scale

Learning effects

Entry / exit costs

Technological change

Q1: Industry’s Dominant Economic Traits
q2 what competitive forces are at work in the industry and how strong are they
Porter’s Five Forces. Forces influencing industry and competitive advantage:

Competitive Intensity (Rivalry Among Sellers)

Barriers to Entry (Potential for New Entrants)

Bargaining Power of Suppliers

Bargaining Power of Customers

Threat of Substitute Products

Q2. What competitive forces are at work in the industry and how strong are they?

pg. 33 in Applegate

q2 what competitive forces are at work in the industry and how strong are they6
The rivalry among sellers

Greater the rivalry, lower the avg. profitability

What causes rivalry to be strong or weak?

# of competitors

Size / capability of competitors

Financial status of competitors

Slow growth

Cost of exit barriers

Switching costs for customers

Variability in demand

Q2. What competitive forces are at work in the industry and how strong are they?
q2 what competitive forces are at work in the industry and how strong are they7
Potential new entrants

Barriers to entry

Economies of scale

Learning curve effects

Customer loyalty / brand preferences

Resource / investment

Access to distribution

Regulation

Patents, proprietary technology

Level of industry profits

Q2. What competitive forces are at work in the industry and how strong are they?
q2 what competitive forces are at work in the industry and how strong are they8
The relative power of suppliers

Importance of component

Switching costs

Backward integration threats

Substitutes

The relative power of buyers

Switching costs

% market share / size

# of suppliers

Product standardization

Potential for backward integration

Q2. What competitive forces are at work in the industry and how strong are they?
q2 what competitive forces are at work in the industry and how strong are they9
Substitute products

Place a ceiling on prices and profits of industry

Invite comparison shopping

E.g., eyeglasses vs. contact lenses

E.g., sugar vs. artificial sweeteners

Q2. What competitive forces are at work in the industry and how strong are they?
q3 what are the forces of change in the industry and what impact will they have
The most dominant forces the cause the industry to change are called driving forces

Task 1 - identify the driving forces

Task 2 - assessing their impact on the industry (few are important, generally)

Common Driving Forces

Changes in long term industry growth rate

Changes in who buy the products and for what reason

Product innovation

Technological change

Marketing innovation

Increasing globalization

Regulatory changes

Changing societal concerns, attitudes and lifestyles

Q3. What are the forces of change in the industry and what impact will they have?

Environmental scanning

q4 which companies are in the strongest weakest competitive position
Q4. Which companies are in the strongest/weakest competitive position?
  • Using the strategic group mapping: two dimensional representation according to the competitive characteristics of the competitors in the industry
  • Axes should not be correlated
  • Size of circles proportional to combined sales
  • The closer the circles, the stronger the rivalry
  • See http://i.i.com.com/cnwk.1d/html/b/305,1,Competitive and http://www.quickmba.com/strategy/pest/ for more information.

Competitive characteristics

Product line/merchandise mix

q5 who s likely to make what competitive moves next
In order to outmaneuver your competition you have to evaluate the competitors’ future moves.

Identify competitors strategies

Evaluate who are the major players-- now

Who will be the major players

Evaluate what the major players are going to do

Q5. Who’s likely to make what competitive moves next?
q6 what key factors will determine success or failure
Q6.What key factors will determine success or failure?
  • Key success factors (KSF) are crucial elements that lead to success.
  • What are they now? What will they be?
  • In beer production KSF can be brewing skills
  • In retail apparel KSF can be low cost, superior service, superior design
  • In your industry, KSF=????
q7 how attractive is the industry in terms of its prospects for above average profitability
Q7. How attractive is the industry in terms of its prospects for above average profitability?
  • Growth potential
  • Driving forces
  • Entry/exit
  • Stability of demand
  • Competitive forces
  • Risk and uncertainty
  • Competition and its impact on the industry’s future
7 questions
7 Questions

1. What are the industry dominant economic traits?

2. What competitive forces are at work in the industry and how strong are they?

3. What are the forces of change in the industry and what impact will they have?

7 questions16
7 Questions

4. Which companies are in the strongest/weakest competitive position?

5. Who’s likely to make what competitive moves next?

6. What key factors will determine success or failure?

7. How attractive is the industry in terms of its prospects for above average profitability?