Industry and Competition:

1. Industry and Competition:

2. Remember entrepreneurial business strategies build on a sound understanding of the external environment and the needs of customer groups in the market place. Sound strategy is pro-active not reactive.

3. An understanding of the competitive landscape and the strategies employed by others is critical to the success of the firm’s entrepreneurial growth plans.

4. Defining The Firm’s Strategy Opportunities Turnaround Aggressive Competitive Position (Weak) Competitive Position (Strong) Niche Defensive Threats

5. Are forces sufficiently strong to reduce or eliminate industry and individual profits? Entry Supplier power Internal rivalry Buyer power Substitute products & services

6. Internal Rivalry • Each of the following conditions tends to intensify internal rivalry, and, in particular, price competition: • Many sellers in the market • Stagnant or declining industry • Firms have different costs • Excess capacity • Undifferentiated products /low switching costs • Unobservable prices and terms of sale • Large/infrequent sales orders • No “facilitating practices” or cooperative pricing • Strong exit barriers

7. The New Entry New entry erodes incumbents’ profits in two ways: (1) steal incumbents’ business, dividing up market demand among more sellers, and (2) decrease market concentration, heating up internal rivalry and reducing price-cost margins. • Each of the following conditions affects the threat of entry: • Production entails significant economies of scale • Consumers highly value reputation/consumers are brand loyal • Access of entrants to key inputs is limited • High experience curve • High network externalities • Government protection of incumbents • Expectation of severe post-entry competition

8. Substitutes & Complements Substitutes erode profits in the same way as entrants by stealing business and intensifying internal rivalry. Complements boost the demand for the product in question, thereby enhancing profit opportunities for the industry. • Factors to consider when assessing substitutes and complements: • Availability of close substitutes and/or complements • Price-value characteristics of substitutes/complements • Price elasticity of industry demand

9. Supplier Power & Buyer Power The ability of individual customers to negotiate purchase prices that extract profits from sellers. Such ability depends on the market power of the sellers and buyers. • The following factors should be considered : • The relative concentration of the industry in question, and its upstream and downstream industries • Purchase volume of downstream firms • Availability of substitute inputs • Relationship-specific investments by the industry and suppliers • Threat of forward integration by suppliers or backward by buyers • Ability of suppliers to price discriminate

10. Don’t forget what you have already read about strategy or the work of Michael Porter at Harvard.

11. Rivalry Among Existing Firms • Are major competitors likely to undo the established balance of power in our industry? • Is growth in our industry slowing such that competition is becoming fiercer? • What excess capacity exists in our industry? • How capable are our major competitors of withstanding intensified price competition? • How unique are the objectives and strategies of our major competitors?

12. TOWS Analysis Diagram Environmental Opportunities +10 Internal Weaknesses Internal Strengths -10 +10 -10 Environmental Threats

13. Remember the Characteristics of an Effective Strategy • Know your Strengths • and your competitions’ • Know your Weaknesses. • And your competitions’ • Understand where & how you make sales, revenues, and profits • Know Your Cash-Value Chain.

14. Trends • Social • Political • Economic • Technological • Demographic • Global • Local

15. ... and don’t forgetCounter-Trends

16. The External Environment Macro-Environment Industry Environment Demographics Economic Competition FIRM Suppliers Customers Social Substitutes Global Political/Legal Technological

17. External Environment: Opportunities Major shifts in technology Availability of new materials New customer categories Sudden spurts in market growth New uses for old products Access to highly skilled people Additional locations Fresh organization models New distribution channels Changing laws or regulations

18. External Environment: Threats Market slowdowns Costly legislation New and aggressive competition Changing trends Substitute products Exchange rate volatility Labor agreements Shortages of raw materials Laziness andcomplacency Loss of patent protection

19. Some Strategic Environmental Factors

20. Thinking Strategically Organizational Assessment Environmental Analysis External Internal Business Plan

21. Checklist For Competition List direct competition by product and geographic market. Who is directly seeking the same money you are? Specialty retail stores compete with specialty stores, not department stores List the indirect competitors by product and geographic market. Movie theaters are competitors of video stores List emerging competitors entering the industry or market. Video rental stores, supermarkets entering video business.

22. Checklist For Competition Describe the competitors’ strengths and weaknesses by product and market segment List in chart form, tie these back to your strengths and weaknesses. Describe the competitors’ share of the market by product. List by percentages or in unit or dollar volume Discuss relevant background information concerning major competitors Include profiles of their management team, company history, financials (summary or appendices) Show where they are strong or weak

23. Checklist For Competition On what basis will the product / service compete with them? Product superiority, price, advertising, etc. How is this venture superior to that of the competition? Operations, management, product / service, price, delivery, etc. How does this product / service compare with the competition in the eyes of customers? Include some customer reactions from a small sample you have taken Does this venture threaten the major strategic objectives or self-image of the competition? Will they attempt to destroy the venture at any cost?

24. Checklist For Competition If the competition tries to destroy your position in the marketplace, how will you retaliate? What marketing exclusionary tactics can you anticipate? List sources to evaluate product / services against competition Agencies, evaluation firms, publications, etc. Include statements and testimonials What is the basis upon which the industry competes? Price, quality, promotion, personal selling, innovation, legal, franchises, etc. What has been the history of the industry treatment of new enterprises? How easy is it to enter the industry?

25. Checklist For Competition What has been the fate of new firms in the industry? Have other new firms successfully entered the industry? What are the entry barriers? - What keeps others out? What are the exit barriers? - What will keep you and others from leaving