Intra-Industry Analysis
OUTLINE
• Game theory
• Competitor Analysis
• Segmentation
• Strategic Groups
The Contribution of Game Theory
to Competitive Analysis
Main value:
1. Framing strategic decisions as interactions between competitors
2. Predicting outcomes of competitive situations involving a few
players
Some key concepts:
1. Competition and Cooperation—Game theory can show conditions where
cooperation is more advantageous than competition {P.D.}
2. Deterrence—changing the payoffs in the game in order to deter
a competitor from certain actions
3. Commitment—irrevokable deployments of resources that
give creditability to threats
4. Signalling—communication to influence a competitor’s decision
Problems of game theory:
Useful in explaining past competitive behavior—weak in predicting
future competitive behavior. {SCENARIOS}
What’s the problem? — Multitude of models, outcomes highly sensitive
to small changes in assumptions
Complementors & Competitors
• Complementor: customer values your
product MORE when they have the other
player’s product than when they have
yours alone.
• Competitor: customer values your
product LESS when they have the other
player’s product than when they have
yours alone. May cooperate to develop
market & infrastructure.
From Thinking Strategically
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Prisoner’s Dilemma: Competitor pricing, MAD, Employer/Union, Hostage
Dilemma.
To lead or not to lead: If in lead, can imitate as soon as follower’s intentions
are known, or when follower’s success as been assessed.
Look before you leap - use your bargaining power when you’ve got it.
Mix your plays
Opponent’s choices & actions tell you information Monty Hall’s Let’s Make a
Deal.
Pride & irrationality can’t be ignored - people.
Moving first & being intransigent.
Moving second after seeing what your opponent did.
2 kinds of interaction: sequential & simultaneous.
For sequential, Rule #1: look forward & reason backward. Draw a game tree.
For simultaneous, build table, check for dominant strategies, (Rule #2: if you
have one, use it!), then dominated strategies (Rule #3: eliminate dominated
strategies), Rule #4: look for an equilibrium, a pair of strategies in which each
player’s action is the best response to the others.
Thinking Strategically, Dixit & Nalebuff, 1991
Newcleaner’s game
• If Newcleaners (N) enters and
Fastcleaners accomodates, N makes
$100k.
• If N enters and Fastcleaners starts price
war, N loses $200k.
• What should N do?
Thinking Strategically, Dixit & Nalebuff, 1991, p. 38
Newcleaner’s game map
Thinking Strategically, Dixit & Nalebuff, 1991, p. 38
Larry’s choice
• Larry, Mo, & Curly are in a duel and will
shoot once in that order for 2 rounds.
• Outcome ranking: sole survivor, then
one of 2 survivors, then noone gets
killed, then (& worst) you get killed.
• Larry hits 30% of time, Mo 80%, Curly
100%.
• What should Larry do?
Thinking Strategically, Dixit & Nalebuff, 1991, p. 329
David &
Goliath’s
choices.
>David produces 1 slingshot per
quarter, Goliath 2, & no flexibility
in output.
>Once exit industry, can’t come
back in.
Thinking Strategically, Dixit & Nalebuff, 1991, p. 340
Thinking Strategically, Dixit & Nalebuff, 1991, p.343
What Price a Dollar?
• Bidding proceeds at 5 cent increments.
• Highest bidder gets the dollar.
• The highest AND the second highest
bidder must pay their bid.
Thinking Strategically, Dixit & Nalebuff, 1991, p. 349
From Co-opetition
• Players: when you enter a game, you change it. Get
paid to play.
• Added Value: Size of the pie when you are in MINUS
size of pie when you are out. Red & Black card pair
= $100.
• Rules: w/ customers, suppliers, government sets
many, changing. Most Favored Customer clause.
• Tactics: Actions to your benefit.
• Scope: Boundaries of the game.
Co-opetition, Brandenburger & Nalebuff, 1996
Value Net
Co-opetition, Brandenburger & Nalebuff, 1996
University Value Net
Co-opetition, Brandenburger & Nalebuff, 1996
Co-opetition, Brandenburger & Nalebuff, 1996
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?
{Sources of information}
Segmentation Analysis: The
Principal Stages
• Identify key variables
and categories.
Identify segmentation variables
Reduce to 2 or 3 variables
Identify discrete categories for
each variable
• Construct a segmentation matrix
• Analyze segment attractiveness
• Identify KSFs in each segment
• 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
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
REGION
US& Canada
Luxury Cars
Full-size sedans
Mid-size sedans
Small sedans
Station wagons
Passenger minivans
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
Focus vs. Broad, Branding
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
following the same or similar strategy.
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, Daimler
Chrysler
Broad
REGIONALLY-FOCUSED
BROAD-LINE
PRODUCERS
e.g. Fiat, PSA, Renault,
PRODUCT
RANGE
GLOBAL SUPPLIERS OF
NARROW MODEL RANGE
e.g., Volvo, Subaru, Isuzu,
Suzuki, Saab, Hyundai
NATIONALLY FOCUSED,
INTERMEDIATE LINE
PRODUCERS
e.g. Tofas, Kia, Proton, Maruti
LUXURY CAR
MANUFACTURERS
NATIONALLY- FOCUSED,
SMALL, SPECIALIST
PRODUCERS e.g., Bristol
(U.K.), Classic Roadsters
(U.S.), Morgan (U.K.)
Narrow
National
e.g., Jaguar, Rolls Royce,
BMW
PERFORMANCE
CAR PRODUCERS
e.g., Porsche,
Maserati, Lotus
GEOGRAPHICAL SCOPE
Global
Strategic Groups Within the World Petroleum Industry
1.5
Kuwait Petroleum
PDVSA
NATIONAL
Iran PRODUCTION
COMPANIES
NOC
1.0
Statoil
Pemex
Indian Oil
0.5
Vertical Balance
2.0
INTERNATIONAL
Premier UPSTREAM
Oil
COMPANIES
Enterprise
Petrobras
INTEGRATED
DOMESTIC
OIL COMPANIES
BP-Amoco
Exxon
INTEGRATED -Mobil
Petronas
Chevron
INTERNATIONAL Royal Dutch
-Shell Gp.
MAJORS
YPF
Phillips
Phillips
Texaco
ENI
Elf-Fina-Total
ENI
Repsol
INTERNATIONAL
Repsol
DOWNSTREAM
E.g. Neste
OIL COMPANIES
0
Nippon
Tosco
INTEGRATED OIL
MAJORS
INTERNATIONAL
UPSTREAM,
REGIONALLY
FOCUSED
DOWNSTREAM
0
10
NATIONALLY-FOCUSED
DOWNSTREAM COMPANIES
20
30
40
50
Geographical Scope
60
70
80