Summary Chapter 5
Summary Chapter 5
Industry and Competitor Analysis
Industry and Competitor Analysis
Industry analysis is a
business research that focuses on the potential of an industry.
Industry analysis is
important because it help the company to think about the position at the both
of company level and the product or service level.
Studying Industry Trends
1.
Environmental
Trends.
2.
Business Trends.
The
5 Forces Model
à A framework entrepreneur use to understand an industry’s structure. The framework is comprised to the forces that determine industry profitability. Each of porter’s 5 forces affects the average rate of return for the firms in an industry by applying pressure on industry profitability.
à A framework entrepreneur use to understand an industry’s structure. The framework is comprised to the forces that determine industry profitability. Each of porter’s 5 forces affects the average rate of return for the firms in an industry by applying pressure on industry profitability.
1.
Threat of
Substitutes
à the product or services from other industries can’t easily serve as substitutes for the products or service being made and sold in the focal firm’s industry.
à the product or services from other industries can’t easily serve as substitutes for the products or service being made and sold in the focal firm’s industry.
2.
Threat of New
Entrants
à The competitors cannot easily enter the industry and successfully copy what the industry incumbents are doing to generate profits. The techniques are referred to as barrier to entry (a condition that creates a disincentive for a new firm to enter an industry.)
à The competitors cannot easily enter the industry and successfully copy what the industry incumbents are doing to generate profits. The techniques are referred to as barrier to entry (a condition that creates a disincentive for a new firm to enter an industry.)
a.
6 major sources of
barriers to entry:
- Economies of scale: the characterized by large economies of scale are difficult for new firms to enter, unless they are willing to accept a cost disadvantage. And it occur when mass producing a product result in lower average costs.
- Product differentiation : make a strong brand that are difficult to break into without spending heavily on advertising.
- Capital requirements: The need to invest large amount of money to gain entrance to an industry is another barrier to entry.
- Cost advantage independent of size: Entrenched competitors may have cost advantage not related to size that are not available to new entrants.
- Access to distribution channels: Distribution channels are often hard to crack.
- Government and legal barriers: In Knowledge- intensive industry such as biotechnology and software, patents, trademarks, and copyrights form major barriers to entry. Other industry such as banking and broadcasting require the granting of a license by a public authority.
- Economies of scale: the characterized by large economies of scale are difficult for new firms to enter, unless they are willing to accept a cost disadvantage. And it occur when mass producing a product result in lower average costs.
- Product differentiation : make a strong brand that are difficult to break into without spending heavily on advertising.
- Capital requirements: The need to invest large amount of money to gain entrance to an industry is another barrier to entry.
- Cost advantage independent of size: Entrenched competitors may have cost advantage not related to size that are not available to new entrants.
- Access to distribution channels: Distribution channels are often hard to crack.
- Government and legal barriers: In Knowledge- intensive industry such as biotechnology and software, patents, trademarks, and copyrights form major barriers to entry. Other industry such as banking and broadcasting require the granting of a license by a public authority.
3.
Rivalry Among
Existing Firms
4 primary factors that determine the nature and intensity of the rivalry among existing firms in a industry
- Number and balance of competitors : With a larger number of competitors, it’s more likely that one or more will try to gain customers by cutting prices.
- Degree of difference between products: The degree to which products differ from one producer to another affects industry rivalry.
- Growth rate of an industry: The competitors among firms in a slow growth industry is stronger than among those in fast-growth industries.
- Level of fixed costs: Firms that have fixes costs must sell a higher volume of their product to reach the break even point that firms with low fixed costs.
4 primary factors that determine the nature and intensity of the rivalry among existing firms in a industry
- Number and balance of competitors : With a larger number of competitors, it’s more likely that one or more will try to gain customers by cutting prices.
- Degree of difference between products: The degree to which products differ from one producer to another affects industry rivalry.
- Growth rate of an industry: The competitors among firms in a slow growth industry is stronger than among those in fast-growth industries.
- Level of fixed costs: Firms that have fixes costs must sell a higher volume of their product to reach the break even point that firms with low fixed costs.
4.
Bargaining power
of suppliers
à In general, industries are more attractive when the bargaining power of suppliers is low. In some cases, suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide. If a supplier reduces the quality of the components it supplies, the quality of the finished prouct will suffer, and the manufacturer will eventually have to lower its price. If the suppliers are powerful relative to the firms in the industry to which they sell, industry profitability can suffer.
Several factors that have an impact on the ability of suppliers to exert pressure on buyers and the profitability of the industries they serve:
-Supplier concentration: When there are only a few suppliers to provide a critical product to a large number of buyers, the suppliers has an advantage.
- Switching costs: the fixed costs that buyers encounter when switching or changing from one supplier to another.
- Attractiveness of substitutes: Supplier power is enchanced if there are no attractivenes for the products or servuces the the supplier offers.
- Threat of forward integration: The power of a supplier is enchanced if there is a credible possibility that the supplier might enter the buyer’s industry.
à In general, industries are more attractive when the bargaining power of suppliers is low. In some cases, suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide. If a supplier reduces the quality of the components it supplies, the quality of the finished prouct will suffer, and the manufacturer will eventually have to lower its price. If the suppliers are powerful relative to the firms in the industry to which they sell, industry profitability can suffer.
Several factors that have an impact on the ability of suppliers to exert pressure on buyers and the profitability of the industries they serve:
-Supplier concentration: When there are only a few suppliers to provide a critical product to a large number of buyers, the suppliers has an advantage.
- Switching costs: the fixed costs that buyers encounter when switching or changing from one supplier to another.
- Attractiveness of substitutes: Supplier power is enchanced if there are no attractivenes for the products or servuces the the supplier offers.
- Threat of forward integration: The power of a supplier is enchanced if there is a credible possibility that the supplier might enter the buyer’s industry.
5.
Bargaining Power of Buyers
à In general, industries are more attractive when the bargaining power of buyers is low. Buyer can suppress the profitability of the industries form which they purchase by demanding price concessions or increase in quality.
There are several factors that affect buyers ability to exert pressure onsuppliers and tha suppress the profitability of the industries from which they buy:
- Buyer group concentration: just concentrate only at a few larger buyers, and they buy from a larger number of suppliers, they can pressure the supplies to the lowest cost and thus affect the profitability of the industries from which they buy.
- Buyer’s costs: The greater the importance of an item is to a buyer, the more sensitive the buyer will be to the price it pays.
- Degree of the standardization of supplier’s products: The degree to which a supplier’s product differs from its competitors offering affects the buyer’s bargaining power.
- Thereat of backward integration: The power of a buyer is enhanced if there is a credible threat that the buyer mig
à In general, industries are more attractive when the bargaining power of buyers is low. Buyer can suppress the profitability of the industries form which they purchase by demanding price concessions or increase in quality.
There are several factors that affect buyers ability to exert pressure onsuppliers and tha suppress the profitability of the industries from which they buy:
- Buyer group concentration: just concentrate only at a few larger buyers, and they buy from a larger number of suppliers, they can pressure the supplies to the lowest cost and thus affect the profitability of the industries from which they buy.
- Buyer’s costs: The greater the importance of an item is to a buyer, the more sensitive the buyer will be to the price it pays.
- Degree of the standardization of supplier’s products: The degree to which a supplier’s product differs from its competitors offering affects the buyer’s bargaining power.
- Thereat of backward integration: The power of a buyer is enhanced if there is a credible threat that the buyer mig
6.
ht enter the
supplier’s industry.
The Value of the 5 forces
model
è can be used in 2 ways
1. To help a firm determine whether it should enter a particular industry
2. Whether it can carve out an attractive position in that industry.
1. To help a firm determine whether it should enter a particular industry
2. Whether it can carve out an attractive position in that industry.
Industry Types and the
Opportunities They Offer
1.
Emerging
Industries : a new industry in which standard operating procedures have yet to
be developed. Because the high level of
uncertainty characterize emerging industries, any opportunity that is
captured may be short-lived. Still many new ventures enter emerging industries
because barriers to entry are usually low and there is no established pattern
of rivalry.
2.
Fragmented
Industry: characterized by a large number of firms of approximately equal size.
3.
Mature Industries:
an industry that is experiencing slow or no increase in demand, has numerous
repeat customers, and has limited product innovation.
4.
Declining
Industries: an industry or a part of an industry that is experiencing a
reduction in demand.
There are 3 different strategies in declining industries:
1. Adopt a leadership strategy, in which the firm tries to become the dominant player in the industry.
2. Pursue a niche strategy, which focuses on a narrow segment of the industry that might be encouraged to grow through product or process innovation.
3. Cost reduction strategy, accomplished through achieving lower costs than industry incumbents through process improvements.
There are 3 different strategies in declining industries:
1. Adopt a leadership strategy, in which the firm tries to become the dominant player in the industry.
2. Pursue a niche strategy, which focuses on a narrow segment of the industry that might be encouraged to grow through product or process innovation.
3. Cost reduction strategy, accomplished through achieving lower costs than industry incumbents through process improvements.
5.
Global Industries:
an industry that is experiencing significant international sales.
Competitor Analysis
3 types of competitors a
business will face:
1.
Direct
competitors: these are the businesses that offer products or services that are
identical or highly similar to those of the firm completing the analysis. These
competitors are the most important because they are going after the same
customers as the new firm.
2.
Indirect
competitors: These competitors offer close substitutes to the product the firm
completing the analysis sells.
3.
Future
competitors: These are companies that are not yet direct or indirect
competitors but could move into one of these roles at any time.
Sources of Competitive Intelligence
à The information that is gathered by a firm to learn about its competitors.
à The information that is gathered by a firm to learn about its competitors.
Completing a Competitive Analysis
Grid
à A tool for organizing the information a firm collects about its competitors. It can help a firm see how it stacks up against its competitors, provide ideas for markets to pursue and perhaps most importantly, identify its primary sources of competitive advantage.
à A tool for organizing the information a firm collects about its competitors. It can help a firm see how it stacks up against its competitors, provide ideas for markets to pursue and perhaps most importantly, identify its primary sources of competitive advantage.
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