Martsolf #2

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Industry and
Competitive Analysis
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?
Industry’s
Dominant Economic Traits
Market size
Geographic scope of
competitive rivalry
Market growth rate
& growth cycle
Number & size of
rivals
Number & size of
buyers
Pace of product
innovation
Ease of entry and
exit
Pace of change of
technology
Degree of
differentiation
Capacity & demand
Industry’s
Dominant Economic Traits
Economies of scale offer companies
lower costs & competitive advantage
Available economies of scale:
Manufacturing
Research & Development
Purchasing
Transportation
Advertising
Industry’s
Dominant Economic Traits
Need for high capacity utilization
Whether there exists a strong learning
and experience curve
Prevalence of vertical integration
Capital requirements
Industry profitability: above or below
average?
Porter’s 5 Competitive Forces
Rivalry among competing sellers
Firms with substitute products
Potential entry of new competitors
Leverage of suppliers
Leverage of buyers
Competitive Forces at Work:
Competitive Rivalry Increases when…
Increase in the number
of competitors
Competitor size
becomes more equal
Slow growth in demand
High proportion of cost
is fixed
Product is costly to hold
in inventory
Customer cost to switch
is low
Competitor(s)
dissatisfied with market
position
Size of the payoff for
strategic move
Increase in exit costs
Diversity of competitors
Takeovers of weaker
firms
Competitive Forces at Work:
Substitute Products…
Place ceiling on prices and profits
Customers compare:
Price
Quality
Service
Performance features
Other costs
Competitive Forces at Work:
Substitute Products…
Cost of switching products
Retraining
Additional equipment
Technical help
Testing quality and reliability
Severing old relationships
Establishing new relationships
Competitive Forces at Work:
Threat of New Entrants Determined by…
Economies of scale
Access to
technology
Learning curve
Brand preference &
customer loyalty
Capital requirements
Cost disadvantage
or access to
suppliers
Access to
distribution channels
Regulatory, licensing
& permit policies
Tariffs & restrictions
Competitive Forces at Work:
Power of Suppliers Determined by…
Size of the customer
Number of suppliers
Demand for products
Availability of substitutes
Standardization of commodity
Economies of scale: make or buy
Quality
Competitive Forces at Work:
Power of Buyers Determined by…
Size of the customer
Number of buyers
Demand for products
Cost of switching
Buyer bargaining power is not equal
Threat of vertical integration by buyer
Discretion over when to purchase
Drivers of Change
Internet
Globalization
Long-term industry growth rate
Who buys the product and how it is used
Product innovation
Technological change
Marketing innovation
Drivers of Change
Entry or exit of major firms
Diffusion of technology
Changes in cost and efficiency
Emerging buyer preferences
Regulatory, social and political influences
Reduction in uncertainty and risk
“Flattening” of the world
Key Success Factors
Technology
Manufacturing
Distribution
Marketing
Skills
Organizational capability
Miscellaneous
Strongest & Weakest Companies
Strategic Group
Mapping
Identify competitive
characteristics
Plot firms on a 2variable map
Assign firms to
strategic groups
Circle groups
proportional to size
Variables
Not correlated
Expose differences in
rival strategies
Need not be
quantitative or
continuous
Multiple pairing may
provide several maps
Who Will Make the Next Move?
Identify competitor strategies
Which are strong & which are weak
Evaluate who will be the major players
Predict competitors’ next moves
Strategic changes
Moves into new markets
Acquisition- targets or movers
Competitor Strategies:
Competitive Scope
Local
Regional
National
Multi-country
Global
Competitor Strategies:
Strategic Intent
Dominant leader
Overtake the leader
Among the top 5
Among the top 10
Move up a notch, or two
Overtake a rival
Maintain position
Just survive
Competitor Strategies:
Market Share Objective
Aggressive expansion via:
Internal growth
Acquisition
Expansion via internal growth
Expansion via acquisition
Hold on to present share
Give up share if necessary
Competitor Strategies:
Competitive Position
Getting stronger
Well entrenched
Stuck in the middle of the pack
Seeking different market position
Struggling, or losing ground
Retrenching
Competitor Strategies:
Strategic Posture
Mostly offensive
Mostly defensive
Combination of offense and defense
Aggressive risk-taker
Conservative follower
Competitor Strategies:
Generic Competitive Strategies
Low-cost leadership
Market niche
High end
Low end
Geographic
Special needs buyers
Other
Differentiation based
on:
Quality
Service
Technological superiority
Breadth of product line
Image and reputation
Value
Other attributes
Attractiveness of Industry
Growth potential
Impact of prevailing
driving forces
Potential entry or
exit of major firms
Stability of demand
Trend of competitive
forces
Severity of problems
confronting industry
Future risk or
uncertainty
Potential for impact
on profitability trend
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