CHAPTER
Industry Analysis
3
Key Issue: Analyzing a Market’s Trends and
Attractiveness
Key Assumption: Level of Competition Has
Been Set
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Marketing Planning Sequence
Collect
data
Analyze
data
Develop
objectives,
strategies,
programs
Develop
financial
documents
Negotiate
final plan*
Measure
progress
toward
objectives
Audit
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Continuing from Ch. 2
•
Choose the Level of Competition
Ex) Product Category Level
 Soft Drinks; Snack/Health Bar
•
Industry Analysis = (Product) Category
Analysis
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Bases for Industry Analysis
•
Market Factors (at the Aggregate Level)**
•
Competitive Factors*
•
Michael Porter’s Framework*
•
Environmental Factors
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I. Market Factors for Industry Analysis*
Category Size: Sales Volume or $$  two sources of info
•
•
•
•
•
•
http://www.beerinsights.com
•
http://www.dfcint.com/
•
•
http://www.autonews.com
http://www.gartner.com/technology/home.jsp
Growth Rate
Stage in Product Life Cycle*
Cyclicity & Seasonality
Marketing Mix (General Trends on 4Ps)
•
Product differentiation: Macro (http://www.census.gov) and Micro
(advertising $$ or number of product lines or skus)
•
•
Profits & Financial Ratios
Source of Information: ISU library database (marketline
information center; mergent online & million dollar database)
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Category Attractiveness over
the Product Life Cycle
Sales
Stage of
product
life cycle
Introduction
Growth
Maturity
Decline
Category
size
Small
Moderate
Large
Moderate
Category
growth
Low
High
Low
Negative
Category
attractiveness
Low
High
Low/high
Low
McGraw-Hill/Irwin
Time
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II. Competitive Factors for Industry Analysis
•
•
•
•
•
•
Industry Concentration*
Intensity of Rivalry*
Power of Buyers & Suppliers*
Pressure from Substitutes
Threat of Entries and Exits
Capacity Utilization
McGraw-Hill/Irwin
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Industry Concentration Measures
1. The share of the largest firm
2. The combined shares of the three largest firms
3. The number of firms with at least x percent of the
market (e.g., 1 percent)
4. The share of the largest firm divided by the share of the
next three largest competitors
5. Herfindahl-Hirschman Index (HHI):
-The Sum of Squared Shares of the Firms in the Industry
- Use
- Thresholds: below 1000; 1,000 to 1,800; above 1,800
http://www.census.gov/econ/census02/
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Characteristics of Intensive Rivalry
Many or Balanced Competitors
 Slow Growth
 High Fixed Costs
 Lack of Product Differentiation
 Any Example?

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Buyer Power Is Higher When
Buyer accounts for a large percentage of the
industry’s output.
 Product is undifferentiated.
 Threat of backward integration.
 Buyer has full information.
 Example:

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Supplier Power Is Higher When
Suppliers are concentrated.
 No or few Substitute for the product.
 Differentiated product/high switching cost.
 Limited Supply.
 Example: Video Game Machine (Nintendo!)

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Industry Attractiveness based on
Market Factors
Attractiveness
Market Factors
High
Low
Size
Large
Small
Growth
High
Slow
Stage in life cycle
Early
Late
Cyclicity
Low
High
Seasonality
Low
High
Marketing spending
Low
High
Profits
High
Low
Financial ratios
High
Low
McGraw-Hill/Irwin
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Industry Attractiveness based on
Competitive Factors
Attractiveness
Competitive Factors
High
Low
Concentration
Low
High
Power of buyers
Low
High
Power of suppliers
Low
High
Rivalry
Low
High
Pressure from substitutes
Low
High
Capacity utilization
High
Low
Threat of entry
Low
High
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III. (Macro) Environmental Factors
Technological*
 Economic
 Social*
 Political
 Regulatory*

For your project, pick only “important and
relevant” ones
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Typology of Technical Developments
* Includes agronomic and biomedical developments.
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Projected Change in U.S. Population
1995-2005
11,155,359
5,584,488
The coming bulge
of TEENAGE
8,042,836
“ECHO
BOOMERS” will
benefit the
entertainment,
casual apparel,
and consumer
electronics
industries.
AGING
BOOMERS will
give a lift to
industries related
to financial
services, travel
and leisure,
nutrition, and
home furnishings.
2,352,954
1,925,310
749,498
679,419
-5,467,332
ES: 0-9
McGraw-Hill/Irwin
10-19 20-29 30-39 40-49 50-59 60-69 70-79 80-89
90+
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U.S. Income Inequality
McGraw-Hill/Irwin
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Business Implications of Social Changes

The Shrinking Day

Connected Individual

Body + Soul
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Examples for Evaluating
Category Attractiveness
Energy Bars (from earlier version)
 Retail Coffee
 MP3 Phone

McGraw-Hill/Irwin
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Energy Bars: Category Attractiveness
Summary
Aggregate
Market
Category Size
Attractiveness
++
McGraw-Hill/Irwin
Analysis
•$504 mm energy bar category in
2001
Energy bar category
contains four primary
brands, plus their subbrands and over 100 smaller
players
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Analysis
Category Growth •Average annual growth rate of 57%
between 1997 and 2001
Attractiveness
++
McGraw-Hill/Irwin
U.S. energy bar category sales
forecasted at $750 mm in 2003 for a
continued expected growth of 22%
•Industry reports suggest
current annual growth for the
energy bar market 25%-30%
•Category expanding: new competitors are
entering, existing brands are expanding with
new products and flavors, market penetration
and usage occasion is increasing
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Product Life
Cycle
Analysis
•Both the category and Odwalla
Bars specifically are both securely
in early stages of growth phase
Attractiveness
++
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Sales Cyclicity
Attractiveness
+
McGraw-Hill/Irwin
Analysis
•While energy bars are premiumpriced for their convenience and
nutrient level, the base dollar point
of $1-$3 per bar is low such that
they are not directly impacted by
GDP variations
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Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Seasonality
Attractiveness
++
McGraw-Hill/Irwin
Analysis
•Year-round sales
•Category overall may experience a
slight sales increase in the spring and
summer month during “race season” and
as users are engaged in more outdoor
activities and desire quick, portable
energy.
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Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Profits
Attractiveness
+
McGraw-Hill/Irwin
Analysis
•As most major competitors are within the
product portfolios of larger consumer
goods companies, it is difficult to
benchmark profitability within the energy
bar category specifically. Nevertheless,
the recent acquisition of the leading
competitors reflects an expectation for
strong profit potential.
Increased category competitiveness
may lead to lower pricing and profits
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Energy Bars: Attractiveness Summary (cont)
Category
Analysis
•Strong potential for new competitors
given that the category is profitable,
fairly easy to enter, and increasingly
relevant to consumers.
•Further, with the “big three” brands strongly
in place [PowerBar, Clif (including Luna), and
Attractiveness Balance], it is most likely that small
competitors will enter through the natural
foods channel, creating more direct
competition with Odwalla bars.
Threat of New
Entrants/Exits
-
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Category
Economies of
Scale
Analysis
•Competitors within the broader category
of snack bars would likely experience
economies of scale with a relatively
easy entry into the energy bar market
Attractiveness
-
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Category
Capital
Requirements
Attractiveness
Analysis
•Within the mainstream energy bars,
differentiation is largely through brand,
taste, and flavor variety. With the
exception of targeted nutrition products
like protein- or carbohydrate-specific
products, nutritional levels are largely
at parity.
-
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Category
Switching Costs
Analysis
•Switching costs are very low, opening
the door to potential competitors
Attractiveness
-
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Distribution
Attractiveness
-
McGraw-Hill/Irwin
Analysis
•As there are not specialty requirements
for distribution (refrigeration, etc.), it
would be very easy for any of the
“center of the store” consumer food
companies to enter the category and
add on to their existing distribution
structure. This is particularly true for
companies that have an established
relationship with the category buyer.
Shelf life
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Analysis
Bargaining
Power of Buyers
•Lots of competitors with relatively
similar options distinguished by brand
and taste keeps retailer power strong
Attractiveness
-
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Bargaining
Power of
Suppliers
Analysis
•As the suppliers of raw inputs for
energy bars are largely agricultural, the
commodity nature of agriculture keeps
prices and supplier power low. While
still relatively low, supplier power will
be higher for nutrient supplement
suppliers
Attractiveness
+
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Pressure from
Substitutes
Analysis
•Considerable
•Fresh fruit, cereal bars, smoothies,
candy bars, etc. are all suitable portable
substitutes for the mainstream energy
bar consumer. True athletes are most
likely to substitute with higher nutrient
level energy bars
Attractiveness
-
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Category
Capacity
Analysis
•Appears to be high given current
scenario of more than 100
manufacturers and many more products.
But, still, it is too early to determine
true capacity
Attractiveness
+
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Energy Bars: Attractiveness Summary (cont)
Aggregate
Market
Current
Category
Rivalry
Analysis
•Very high. Differentiation largely by
taste and flavor variety, and by
targeting unique market segments
Attractiveness
-
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Environmental
Technological
Analysis
•Technology could play a significant role
with respect to manufacturing
efficiencies and taste profiles
Attractiveness
+
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Environmental
Economic
Analysis
•While premium priced, energy bars have
so far seemed to fair the recession
well. Still, however, if economic
conditions persist, consumers may opt
for less expensive alternatives like
fresh fruit or non-energy snack bars
Attractiveness
+
McGraw-Hill/Irwin
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Energy Bars: Attractiveness Summary (cont)
Environmental
Political/
Regulatory
Analysis
•The energy bar category is regulated
by the FDA as are other food products.
There are not to our knowledge,
however, additional regulations directed
toward the energy bar category.
Attractiveness
0
McGraw-Hill/Irwin
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Energy Bars: Attractiveness Summary (cont)
Environmental
Social
Analysis
•As lives get busier and mealtimes
shrink, energy bars will continue to be
an acceptable meal replacement.
Attractiveness
++
McGraw-Hill/Irwin
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Category Attractiveness: Retail Coffee
McGraw-Hill/Irwin
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Category Attractiveness: MP3 Phones
McGraw-Hill/Irwin
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