Further Topics in Industry
and Competitive Analysis
OUTLINE
 Extending 5-forces analysis
o Does industry matter?
o Complements
o Dynamic competition
 Game Theory
 Competitor Analysis
 Segmentation
 Strategic Groups
Does Industry Matter?
Schmalensee
(1985)
Rumelt (1991)
McGahan &
Porter 1997)
Hawawini et al
(2003)
Percentage of variance in firms’ return on assets
explained by:
Industry
Firm-specific
Unexplained
effects
effects
variance
19.6%
0.6%
80.4%
4.0%
44.2%
44.8%
18.7%
31.7%
48.4%
8.1%
35.8%
52.0%
The Value Net
CUSTOMERS
COMPETITORS
COMPANY
SUPPLIERS
COMPLEMENTORS
Five Forces or Six? —Introducing Complements
The suppliers of
complements create
value for the industry
and can exercise
bargaining power
SUPPLIERS
Bargaining power of suppliers
INDUSTRY
COMPETITORS
POTENTIAL
ENTRANTS
COMPLEMENTS
Threat of
new entrants
Threat of
Rivalry among
existing firms
Bargaining power of buyers
BUYERS
SUBSTITUTES
substitutes
Dynamic Competition
Porter framework assumes:
(a) industry structure drives competitive behavior
(b) Industry structure is (fairly) stable.
But, competition also changes industry structure:
•
Schumpeterian Competition: A “perennial gale of creative
destruction” where firm strategies continually transforms industry
structure innovation overthrows established market leaders
•
Hypercompetition: “intense and rapid competitive
moves….creating disequilibrium through continuously creating
new competitive advantages and destroying, obsolescing or
neutralizing opponents’ competitive advantages
Implication: Under dynamic competition, 5-forces framework is
less useful—Competitive behavior and industry structure jointly
determined by underlying conditions of technology, demand &
costs
The Contribution of Game Theory
to Competitive Analysis
Main value:
1.
2.
Framing strategic decisions as interactions between competitors
Predicting outcomes of competitive situations involving a few,
evenly-matched players
Some key concepts:
1.
2.
3.
4.
Competition and Cooperation—Game theory can show conditions
where cooperation more advantageous than competition
Deterrence—changing the payoffs in the game in order to deter
a competitor from certain actions
Commitment—irrevocable deployments of resources that
give creditability to threats
Signaling—communication to influence a competitor's decision
Problems of game theory:
Useful in explaining past competitive behavior—weak in predicting
future competitive behavior.
What’s the problem? — Multitude of models, outcomes highly sensitive
to small changes in assumptions
A Framework for Competitor Analysis
OBJECTIVES
What are competitor’s current goals?
Is performance meeting there goals?
How are its goals likely to change?
STRATEGY
How is the firm competing?
ASSUMPTIONS
What assumptions does the competitor
hold about the industry and itself?
RESOURCES & CAPABILITIES
What are the competitors’ key
strengths and weaknesses?
PREDICTIONS
• What strategy changes
will the competitor
initiate?
• How will the competitor
respond to our strategic
initiatives?
Segmentation Analysis: The Principal Stages
Identify segmentation variables
Reduce to 2 or 3 variables
Identify discrete categories for
each variable
1.
Identify key variables
and categories.
2.
Construct a segmentation matrix
3.
Analyze segment attractiveness
4.
Identify KSFs in each segment
5.
Analyze benefits of
broad vs. narrow scope.
Potential for economies
of scope across segments
Similarity of KSFs
Product differentiation benefits
of segment focus
The Basis for Segmentation: Customer
and Product Characteristics
Industrial buyers
Characteristics
of the Buyers
Household buyers
Distribution channel
Opportunities for
Differentiation
Characteristics
of the Product
Geographical
location
•Size
•Technical
sophistication
•OEM/replacement
•Demographics
•Lifestyle
•Purchase occasion
•Size
•Distributor/broker
•Exclusive/
nonexclusive
•General/special
list
•Physical size
•Price level
•Product features
•Technology design
•Inputs used (e.g. raw materials)
•Performance characteristics
•Pre-sales & post-sales services
Industrial buyers
Characteristics
of the Buyers
Household buyers
Distribution channel
Opportunities for
Differentiation
Characteristics
of the Product
Geographical
location
*Size
*Technical
sophistication
*OEM/replacement
*Demographics
*Lifestyle
*Purchase occasion
*Size
*Distributor/broker
*Exclusive/
nonexclusive
*General/special
list
*Physical size
*Price level
*Product features
*Technology design
*Inputs used (e.g. raw materials)
*Performance characteristics
*Pre-sales & post-sales services
Segmenting the European Metal Can Industry
F ra
F ood
S te e l 3 - p i e c e
S te e l 2 - p i e c e
A l u m i n u m 2 -p i e c e
G e n e ra l c a n s
C o m p o s ite ca n s
A e ro s o l c a n s
F ru i t J u i c e
P et f o o d
S o f t d r in k
B ee r
O il
nc e
ny
rm a
o rt .
in /P
a
p
S
Ge
y
It a l
Segmenting the World Automobile Market
US& Canada
Luxury cars
Full-size cars
Mid-size cars
Small cars
Station wagons
Passenger vans
Sports cars
Sport-utility
Pick-up trucks
W.Europe
E.Europe
Asia
Lat America
Australia
Africa
Vertical Segmentation & Industry Profit Pools
—The US Auto Industry
25
%
20
Service & repair
Leasing
15
Warranty
Auto
manufacturing
New car
dealers
10
5
0
0
Auto
loans
Used car dealers
Auto
insurance
Gasoline
Share of industry revenue
Aftermarket
parts
Auto
rental
100%
Segmentation and Key Success Factors in the U.S. Bicycle Industry
SEGMENT
Low price bicycles sold primarily
through department and discount
stores, mainly under the retailer’s
own brand (e.g. Sears’ “Free Spirit”);
Medium-priced bicycles sold
primarily under manufacturer’s brand
name and distributed mainly through
specialist bicycles stores;
KEY SUCCESS FACTORS
* Low-costs through global sourcing of components
& low-wage assembly.
* Supply contract with major retailer.
Leading competitors: Taiwanese & Chinese assemblers,
some U.S manufacturers, e.g. Murray Ohio, Huffy
*Cost efficiency through large scale operation and
either low wages or automated manufacturing.
*Reputation for quality (durability, reliability) through
effective marketing to dealers and/or consumers.
* International marketing & distribution.
Leading competitors: Raleigh, Giant, Peugeot, Fuji
High-priced bicycles for enthusiasts.
Children’s bicycles (and tricycles) sold
primarily through toy retailers (discount
toy stores, department stores, and
specialist toy stores).
*Quality of components and assembly, Innovation in
design (e.g. minimizing weight and wind resistance).
*Reputation (e.g. through success in racing, through
effective brand management).
*Strong dealer relations.
Similar to low-price bicycle segment.
Strategic Group Analysis
A strategic group is a group of firms in an industry
that follow the same or similar strategies
Identifying strategic groups:
• Identify principal strategic variables which
distinguish firms.
• Position each firm in relation to these
variables.
• Identify clusters.
Strategic Groups in the World Automobile Industry
GLOBAL, BROAD-LINE
PRODUCERS
e.g., GM, Ford, Toyota,
Nissan, Honda, VW,
DaimlerChrysler
Broad
REGIONALLY-FOCUSED
BROAD-LINE
PRODUCERS
e.g. Fiat, PSA, Renault,
Kia,
PRODUCT
RANGE
GLOBAL SUPPLIERS OF
NARROW MODEL RANGE
e.g., Subaru, Isuzu, Suzuki,
Saab, Hyundai, Daihatsu
NATIONALLY FOCUSED,
INTERMEDIATE LINE
PRODUCERS
e.g. Tofas, Proton, Maruti
First Auto Works (China)
LUXURY CAR
MANUFACTURERS
NATIONALLY- FOCUSED,
SMALL, SPECIALIST
PRODUCERS e.g., Bristol
(U.K.), Classic Roadsters
(U.S.), Morgan (U.K.)
Narrow
National
e.g., Aston Martin, BMW,
Rolls Royce (owned by VW)
PERFORMANCE
CAR PRODUCERS
e.g., Porsche,
Ferrari (owned by
Fiat) Maserati, Lotus
GEOGRAPHICAL SCOPE
Global
Strategic Groups Within the World Petroleum Industry
Adanarko
Kuwait Petroleum
PDVSA
NATIONAL
Iran PRODUCTION
COMPANIES
NOC
1.5
1.0
0.5
INTEGRATED OIL
MAJORS
INTERNATIONAL
UPSTREAM,
REGIONALLY
FOCUSED
DOWNSTREAM
INTEGRATED
DOMESTIC
OIL COMPANIES
Statoil
BP
Chevron
Peme
Petronas
Lukoil x
PetroChina
Conoco
Phillips
Indian Oil
Phillips
Petrobras
ENI
Elf-Fina-Total
ENI
Nippon
Repsol
YPF
Repsol
Valero
Neste
Ashland
Sunoco
Exxon
-Mobil
THE
SUPER
MAJORS
Royal Dutch
Shell
INTERNATIONAL
DOWNSTREAM
OIL COMPANIES
0
Vertical Balance
2.0
INTERNATIONAL
Apache UPSTREAM Premier
COMPANIES Oil
0
10
NATIONALLY-FOCUSED
DOWNSTREAM COMPANIES
20
30
40
50
Geographical Scope
60
70
80