industry and competitive analysis. questions to answer: what are the dominant economic traits? what...
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Industry and Competitive Analysis
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Questions to Answer:
What are the dominant economic traits?What are the competitive forces at work?What are the drivers of change?Which companies are the strongest and the weakest?Who will make the next competitive move?What are the key factors of success?How attractive is the industry for profitability?
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Industry’s Dominant Economic Traits
Market sizeGeographic scope of competitive rivalryMarket growth rate & growth cycleNumber & size of rivalsNumber & size of buyers
Pace of product innovationEase of entry and exitPace of change of technologyDegree of differentiationCapacity & demand
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Industry’s Dominant Economic Traits
Economies of scale offer companies lower costs & competitive advantageAvailable economies of scale:
ManufacturingResearch & DevelopmentPurchasingTransportationAdvertising
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Industry’s Dominant Economic Traits
Need for high capacity utilizationWhether there exists a strong learning and experience curvePrevalence of vertical integrationCapital requirementsIndustry profitability: above or below average?
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Porter’s 5 Competitive Forces
Rivalry among competing sellersFirms with substitute productsPotential entry of new competitorsLeverage of suppliersLeverage of buyers
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Competitive Forces at Work: Competitive Rivalry Increases when…
Increase in the number of competitorsCompetitor size becomes more equalSlow growth in demandHigh proportion of cost is fixedProduct is costly to hold in inventory
Customer cost to switch is lowCompetitor(s) dissatisfied with market positionSize of the payoff for strategic moveIncrease in exit costsDiversity of competitorsTakeovers of weaker firms
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Competitive Forces at Work: Substitute Products…
Place ceiling on prices and profitsCustomers compare:
PriceQualityServicePerformance featuresOther costs
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Competitive Forces at Work: Substitute Products…
Cost of switching productsRetrainingAdditional equipmentTechnical helpTesting quality and reliabilitySevering old relationshipsEstablishing new relationships
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Competitive Forces at Work: Threat of New Entrants Determined by…
Economies of scaleAccess to technologyLearning curveBrand preference & customer loyaltyCapital requirements
Cost disadvantage or access to suppliersAccess to distribution channelsRegulatory, licensing & permit policiesTariffs & restrictions
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Competitive Forces at Work: Power of Suppliers Determined by…
Size of the customerNumber of suppliersDemand for productsAvailability of substitutesStandardization of commodityEconomies of scale: make or buyQuality
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Competitive Forces at Work: Power of Buyers Determined by…
Size of the customerNumber of buyersDemand for productsCost of switchingBuyer bargaining power is not equalThreat of vertical integration by buyerDiscretion over when to purchase
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Drivers of Change
InternetGlobalizationLong-term industry growth rateWho buys the product and how it is usedProduct innovationTechnological changeMarketing innovation
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Drivers of Change
Entry or exit of major firmsDiffusion of technologyChanges in cost and efficiencyEmerging buyer preferencesRegulatory, social and political influencesReduction in uncertainty and risk“Flattening” of the world
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Key Success Factors
TechnologyManufacturingDistributionMarketingSkillsOrganizational capabilityMiscellaneous
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Strongest & Weakest CompaniesStrategic Group Mapping
Identify competitive characteristicsPlot firms on a 2-variable mapAssign firms to strategic groupsCircle groups proportional to size
VariablesNot correlatedExpose differences in rival strategiesNeed not be quantitative or continuousMultiple pairing may provide several maps
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Who Will Make the Next Move?
Identify competitor strategiesWhich are strong & which are weakEvaluate who will be the major playersPredict competitors’ next moves
Strategic changesMoves into new marketsAcquisition- targets or movers
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Competitor Strategies:Competitive Scope
LocalRegionalNationalMulti-countryGlobal
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Competitor Strategies:Strategic Intent
Dominant leaderOvertake the leaderAmong the top 5Among the top 10Move up a notch, or twoOvertake a rivalMaintain positionJust survive
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Competitor Strategies: Market Share Objective
Aggressive expansion via:Internal growthAcquisition
Expansion via internal growthExpansion via acquisitionHold on to present shareGive up share if necessary
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Competitor Strategies:Competitive Position
Getting strongerWell entrenchedStuck in the middle of the packSeeking different market positionStruggling, or losing groundRetrenching
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Competitor Strategies:Strategic Posture
Mostly offensiveMostly defensiveCombination of offense and defenseAggressive risk-takerConservative follower
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Competitor Strategies:Generic Competitive Strategies
Low-cost leadershipMarket niche
High endLow endGeographicSpecial needs buyersOther
Differentiation based on:
QualityServiceTechnological superiorityBreadth of product lineImage and reputationValueOther attributes
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Attractiveness of Industry
Growth potentialImpact of prevailing driving forcesPotential entry or exit of major firmsStability of demand
Trend of competitive forcesSeverity of problems confronting industryFuture risk or uncertaintyPotential for impact on profitability trend