Conducting An Industry Analysis

Conducting an Industry Analysis
Seven Questions for Industry Analysis

1. What are the industry dominant economic traits? 2. What competitive forces are at work in the industry and how strong are they? 3. What are the forces of change in the industry and what impact will they have? 4. Which companies are in the strongest/weakest competitive position? 5. Whos likely to make what competitive moves next? 6. What key factors will determine success or failure? 7. How attractive is the industry in terms of its prospects for above average profitability?
Q1. What are the industry dominant economic traits?

Market size (Small markets dont attract big fish) Scope of competitive rivalry Market/industry growth rate (life cycle)
Fast growth breeds new entry; slowdowns lead to increased competition.
Number of rivals and their size Number of buyers and their size Level of backward and forward integration Technological change (rate and scope) Level of differentiation between firms products Opportunities for economies of scale Ease of entry and exit Capital requirements
Q1: Industrys Dominant Economic Traits

Market
Size Scope Growth rate Growth cycle # & size of competitors Distribution channels Structure
Forward Integration Backward Integration
Product
Differentiation Potential for economies of scale Learning effects Entry / exit costs Technological change
Q2. What competitive forces are at work in the industry and how strong are they?
Porters Five Forces. Forces influencing industry and competitive advantage:
Competitive Intensity (Rivalry Among Sellers) Barriers to Entry (Potential for New Entrants) Bargaining Power of Suppliers Bargaining Power of Customers Threat of Substitute Products
pg. 33 in Applegate
The rivalry among sellers
Greater the rivalry, lower the avg. profitability What causes rivalry to be strong or weak?
# of competitors Size / capability of competitors Financial status of competitors Slow growth Cost of exit barriers Switching costs for customers Variability in demand
Q2. What competitive forces are at work in the industry and how strong are they? Potential new entrants
Barriers to entry
Economies of scale Learning curve effects Customer loyalty / brand preferences Resource / investment Access to distribution Regulation Patents, proprietary technology
Level of industry profits
The relative power of suppliers
Importance of component Switching costs Backward integration threats Substitutes Switching costs % market share / size # of suppliers Product standardization Potential for backward integration
The relative power of buyers
Substitute products
Place a ceiling on prices and profits of industry Invite comparison shopping E.g., eyeglasses vs. contact lenses E.g., sugar vs. artificial sweeteners
Q3. What are the forces of change in the industry and what impact will they have?
The most dominant forces the cause the industry to change are called driving forces Task 1 - identify the driving forces Task 2 - assessing their impact on the industry (few are important, generally) Common Driving Forces
Changes in long term industry growth rate Changes in who buy the products and for what reason Product innovation Technological change Marketing innovation Increasing globalization Regulatory changes Changing societal concerns, attitudes and lifestyles
Environmental scanning
Q4. Which companies are in the strongest/weakest competitive position?
Using the strategic group mapping: two dimensional representation according to the competitive characteristics of the competitors in the industry Size of circles proportional to combined sales The closer the circles, the stronger the rivalry
Q5. Whos likely to make what competitive moves next?

In order to outmaneuver your competition you have to evaluate the competitors future moves. Identify competitors strategies Evaluate who are the major players-- now Who will be the major players Evaluate what the major players are going to do
Q6. What key factors will determine success or failure?

Key success factors (KSF) are crucial elements that lead to success. What are they now? What will they be? In beer production KSF can be brewing skills In retail apparel KSF can be low cost, superior service, superior design In your industry, KSF=????
Q7. How attractive is the industry in terms of its prospects for above average profitability?
Growth potential Driving forces Entry/exit Stability of demand Competitive forces Risk and uncertainty Competition and its impact on the industrys future
7 Questions
1. What are the industry dominant economic traits? 2. What competitive forces are at work in the industry and how strong are they? 3. What are the forces of change in the industry and what impact will they have?
7 Questions
4. Which companies are in the strongest/weakest competitive position? 5. Whos likely to make what competitive moves next? 6. What key factors will determine success or failure? 7. How attractive is the industry in terms of its prospects for above average profitability?

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Conducting an Industry Analysis

Seven Questions for Industry Analysis

Q1. What are the industry dominant economic traits?

Q1: Industrys Dominant Economic Traits

Level of industry profits

The relative power of buyers

Q4. Which companies are in the strongest/weakest competitive position?

Q5. Whos likely to make what competitive moves next?

Q6. What key factors will determine success or failure?

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