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Industry & Competitive Analysis
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Dominant economic features of industry
Competitive forces in industry - strength of
Industry drivers - impact of
Which companies in strong/weakest position
Key Success Factors of industry
Industry attractiveness
Dominant Economic Features of Industry
• Mkt size
• Geographic scope
• Mkt growth rate - stage of growth cycle
• No. & relative size of rivals
• No. & relative size of buyers
• Prevalence of forward/backward integration
• Distribution channels used
• Pace of technological change - process & product
Dominant Economic Features of Industry
•Pdt/service differentiation
•Scope for economies of scale
•Learning / experience curve effects
•Importance of capacity utilisation
•Resource requirements - ease of entry/exit
•Industry profit potential/attractiveness
Porter’s 5 Force Model of Competition
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Rivalry among competitors / sellers
Threat of substitution
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Rivalry among Competitors
increases when....
• no. and size of competitors increase
• product demand growing slower
• tactics used to increase unit volume eg. price cuts
• low switching costs
• one or more competitor dissatisfied with position
• exit costs are high
• strong co.s outside industry acquire weak firms in
ind.
Threat of New Entrants
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Barriers to entry:
Economies of scale
Access to technology/expertise
Learning curve effects
Brand preference/customer loyalty
Resource requirements
Access to distribution channels
Regulatory policies
Threat of Substitution
Eg. eyeglasses and contact lenses
sugar and artificial sweeteners
Depends on:
• attractively priced substitutes being available
• quality and performance of substitutes
• ease of switching
The lower the price of subs., the higher their quality and
the lower the user’s switching costs the more intense the
threat of substitution.
Power of Suppliers
Threat depends on:
• significance of item they supply
• size of the customer
• no. of suppliers
• whether switching costs high
• potential for backward integration
Power of Buyers
High if...
• switching costs are low
• small no. of buyers
• if threat of backward integration - eg own
label
• if buyers are large eg. tesco - shelf space
• if prestige buyer
Implications of 5 Forces...
The stronger the collective impact of the
competitive forces, the lower the combined
profit of participant firms.
However, even when industry is highly
competitive (forces are strong) it can be
profitable to those who are well positioned.
Successful strategists know what forces exist,
the relative strength of each and understand
the industry’s competitive structure as a
whole.
Driving Forces
The major underlying causes of change in
industry and competitive conditions.
Driving Forces Analysis • identify the driving forces
• assess the impact they will have on the
industry
Important to ensure strategies are as tightly
matched to emerging conditions as possible.
Examples of Driving Forces
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Technological change
Product innovation
Change in buyer demographics
Increasing globalisation
Changing societal concerns
Key Success Factors - of the Industry
The things that most affect the ability of industry
members to prosper in the marketplace.
eg. technology related KSFs; manufacturing
related KSFs; distribution related KSFs;
skills related KSFs.
Important to understand the industry well enough
to know what is more important to competitive
success and what is less important.