Katelyn Reed
Venessa Rodriguez
Kristen Hodge
Monica Longer
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Defined in terms of four dimensions:
1. Products
2. Customers
3. Geography
4. Stage in the production-distribution
Industry Structure and
Proter’s Five Forces Model
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Entry barriers can fall
◦ Deregulation
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Or rise
◦ Brand Identity
 Mac vs. PC
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Models of Industry Evolution
◦ Help explain how and why industries change
Radical
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Industry threatened with obsolescence of core
activities and core assets at the same time
Ex. Travel clients turned to internet-based
service profiders
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Progressive
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The most common type of change.
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Occurs when neither form of obsolescence is
imminent
Ex. Long-haul trucking industry
Creative
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The core assets are threatened, but the core
activities keep their value.
Ex. Movie studios having to produce multiple
blockbusters
Intermediating
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The core activities are threatened, but the core
assets keep their value.
Ex. Museums are losing power as educators to
more modern communication methods
Threatened
Not Threatened
Threatened
Radical Change
(travel industry)
Creative Change
(movie studios)
Not
Threatened
Core Assets
Core Activities
Intermediating
Change
(museums)
Progressive Change
(trucking industry)
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Changes of Industry Structure
◦ Vertical to horizontal
◦ Ex. The multimedia industry
 Started with 3 vertically integrated distinct businesses,
evolved into 5 primarily horizontal segments
 Those 5 businesses compete in 5 segments: content,
packaging, the network, distribution, and display devices
 Strategic advantage for a company is determined by their
relative positions within one of the 5 segments
 Vertical integration is probably going to become an
important strategy again when economies of scale and
scope become critical to success and a principle driver
behind another round of industry consolidation.
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Changes in the degree of industry
concentration
◦ Industry structures are concentrated when
economies of scale are important, market share &
total unit costs are inversely related.
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Rule of Three and Four
◦ “Many stable markets will have only three
significant competitors and the market shares of
these competitors will roughly be proportioned as
four-to-two-to-one, reflecting a concentration
level of approximately 70% of total industry sales
for the three competitors.“
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Studies have shown as markets mature, they
occasionally become less concentrated.
◦ This suggests the relationship between relative
share and const position is less pronounced for
mature markets than it is for immature markets.
◦ Provides an explanation on why larger companies
lose market share as the industry matures.
 Their cost advantage diminishes over time.
◦ In fragmented industries, which have a low degree
of concentration, no single company has a major
market share.
 They are highly differentiated, or a commodity status.
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The product life cycle model
◦ Based on the theory of diffusion of innovations and
its logical counterpart, the pattern of acceptance of
new ideas.
◦ Considered the best known model of industry
evolution.
◦ Suggests that an industry goes through 4 stages
 Introduction, Growth, Maturity, Decline
◦ The different stages are defined by changes in the
growth rate of industry sales
◦ Reflects the result of first and repeat adoptions of a
product/service over time.
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Evolution of an industry or product class
depends on:
◦ Competitive strategies or rival firms, changes in
customer behavior, and legal and social influences.

Introduction stage
◦ High level of uncertainty
 Competitors don’t know which segments to target or
how. Customers aren’t familiar with the new
product/service, benefits of it, or how much they
should pay for it.
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Growth Stage
◦ Less uncertain and have more intense competition
 Largest number of rivals, competitive shakeouts occur at the
end of the growth stage
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Mature Stage
◦ Industries are relatively stagnant in terms of sales
growth.
 Product development can create growth spurts in specific
segments
 Technological breakthroughs alter market development and
competitive order
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Declining Stage
◦ Industries are considered unattractive, but strategies can
produce profits.
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Problems with the Product Life Cycle Analysis
◦ Has little predictive value
◦ Industry growth doesn’t always follow an S-shaped
pattern
◦ Doesn’t acknowledge that companies can affect the
growth curve through strategic actions (ex, increasing
the pace of innovation or repositioning their offerings)
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Competition for standards is usually between
the developer of one standard and another
group that favors a different standard.
◦ Winning standard gives its adopters a large share of
future profits
◦ Winning standard is decided by market share
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3 Phases
Competition is focused mainly on ideas, product
concepts, technology choices, and the building of a
competency base.
◦ Primary goal: learn more about the future potential of the
industry and the key factors that will determine success or
failure
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Competition is more about building a viable
coalition of partners that will support a standard
against competing formats.
◦ Vigorously compete in phase 3
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The battle for market share for end products and
profits.
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Strategic Segmentation
◦ The process of dividing an industry/market into
relatively homogenous, minimally overlapping
segments that benefit from distinct competitive
strategies
◦ Linked with strategic targeting and positioning for
competitive advantage
*Companies using segmentation, targeting, and positioning compete in Red Oc
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Market boundaries are no longer well defined
Not all about market share
Customer & competitor profiles constantly
changing
New questions must be asked.
◦ Ex. Do consumer companies compete at the
business unit level, at the corporate level, or both?
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Who are our firm’s direct competitors now
and in the near term?
What are their major strengths and
weaknesses?
How have they behaved in the past?
How might they behave in the future?
How will our competitors’ actions affect our
industry and company?
•
Assign Roles to competitors
– Leaders
– Challengers
– Followers
– Nichers
Assigning labels provides insight into the competitive
dynamics.
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Leaders
◦ Focus on expanding total demand
◦ Important to defend market share

Challengers
◦ Concentrate on single target
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Followers
◦ Imitation
◦ Compete in a few segments
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Nichers
◦ Focus on narrow piece of market
 Geographic areas, specialty products or services
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Strategic Groups
◦ A set of firms that face similar threats &
opportunities, which are different from the threats
& opportunities faced by other sets of companies in
the same industry
 Ex. Fast food chains
 Rivalry is more intense
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The group of product-market combinations
that a firm serves makes up its
product/market scope.
Four analytical techniques give insight into
the attractiveness of a company’s
product/market scope.
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Market Analysis
Growth Vector Analysis
Gap Analysis
Profit Pool Analysis
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Used to quantify the attractiveness of a
particular industry/segment.
Also useful for developing a better
understanding of the key success factors and
core competencies a company will need to
succeed in achieving its strategic objectives.
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Assess 7 things
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The actual and potential size of the market
Market and segment growth
Market and segment profitability
The underlying cost structure and trends
Current and emerging distribution systems
The importance of regulatory issues
Technological changes
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Four types of growth:
◦ Concentration- within current market scope.
◦ Market Development- adding new customer
segments.
◦ Product/technology development- adding new
products.
◦ Diversification- change in both customer segments
and products/technology.
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When analyzing potential growth directions, it
is useful to perform a similar analysis on key
competitors to determine:
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Growth potential
Competitive position
Potential for improvements
Intentions
If product markets are evolving
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Gap analysis is the process of comparing an
industry’s market potential to the combined
current market penetration by all
competitors. It can lead to additional paths of
growth.
Plotting growth vectors often reveals where
industry sales are below their potential (a
gap).
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Types of gaps:
◦ Product line gaps: the unavailability of product
versions for specific applications or usage
occasions.
◦ Distribution gaps: overlooked customer segments
that have difficulty accessing the product.
◦ Usage gaps: underdeveloped applications for the
product.
◦ Competitive gaps: opportunities to displace
competitors that offer weak product entries or
questionable performance.
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Profit Pool- the total amount of profit earned
at all points along the industry’s value chain.
Important to recognize the difference in
revenues and profits.
◦ Automobile industry
 Revenue: car manufacturing and distribution
 Profit: leasing, insurance and loans
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Analysis of profit pool helps executives
understand how the industry is evolving, why
profit pools form where they have, and how
the profit distribution is likely to change.
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Mapping a profit pool:
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Define the pool’s boundaries
Estimate its overall size
Allocate profits to the different value chain activities
Verify the results