Transcript Industry Structure— Life Cycle and Profit Pools Paul C. Godfrey

Industry Structure—
Life Cycle and Profit Pools
Paul C. Godfrey
Marriott School of Management
Brigham Young University
25 May 2016
Life cycle basics
• Like products, and individuals, industries go through
definitive phases of development
• Stage of development predicts
– Demand
– Level of Competition
– Type and nature of innovation
– Entry, exit, and competitive interactions (e.g., alliances, mergers)
• Strategies that succeed at one stage may be deadly at
another
The Industry Life Cycle
Sales
Volume
Fragmentation
Shakeout
Maturity
Uncertainty
Renewal
Stagnation
Decline
Time
Competition and the Life Cycle
Industry
Characteristic
Fragmentation
(Renewal)
Shakeout
Maturity
(Stagnation)
Decline
Demand
High Income
Buyers
Readily Increasing
Penetration
Mass Market,
Replacement
purchases
Knowledgeable
customers
Technology
Not Standard
Emergence of
competing
paradigms
Standardized and well known, quest for
improvement
Products
Wide Variation
Product “camps”
develop
Little Innovation,
Product extensions
Little change
Manufacturing &
Distribution
Batch Production,
Specialty Channels
Trend toward mass
production, channel
competition
Overcapacity,
process innovation,
channel stability
Heavy overcapacity,
new specialty
channels reemerge
Competition
Few Companies
Competing
business models
Price-based
competition
Price wars, exit
Key Success
Factors
First Mover
Build Brand
Cost Control
Retrench or exit
Product Innovation
Build Scale
Customer Loyalty
Life Cycle
• What stage of the life cycle are different professional sports
industries in?
Profit Pools: Looking at the value chain
• It’s not just how you compete, but where
• The Value Chain distributes value unevenly
• The Personal Computer Industry
Mapping profit pools: 4 steps
Step 1: Define the
boundaries
Step 2: Determine the
size of the pool
Conceptual
Empirical
Step 3:
Determine the
distribution
of profits in the pool
Step 4: Reconcile
estimates & plan
strategy
Defining the pool
• Task: Determine which value chain activities influence your
ability to generate current and future profits
• Take a BROAD view—look beyond tradition, go upstream,
downstream, and consider substitutes
• 3 perspectives: your company, your competitors, your
customers
• Look for new business models and innovations
• Don’t get too detailed at this stage
Sizing the pool
•
Task: develop a baseline estimate of cumulative volumes over the
entire industry, by segment
•
The goal is the comparative size of the segments, not the actual
accurate volume of each segment
•
Go where you can get data: Government data (Census of
Manufacturers) Annual reports, WSJ, Industry analyst reports
•
Try for two levels: company level, product level
•
Focus on largest companies and segments, fill in details through
extrapolation and interviews
•
TIP: Government data is pretty good for comparative volumes
•
http://www.census.gov/econ/census02/
Distribution of profits
• Task: Develop estimates of the profits generated by each
segment
• Look at “pure players” in each segment to determine
profitability
• It’s comparative profitability that matters
• Are there barriers that keep segment profit high and
entrants out?
• Think creatively
• TIP: Profit is far more important than volume when
deciding whether to enter
Planning strategy
• Attempt to reconcile estimates in 2 and 3 through
interviews and triangulation of data sources
• The goal is to look for new segments to explore and/or
exploit
• Develop strategic migration path and possibilities
• Check for consistency with current strategies to avoid
conflict
Profit Pools
• How do profits pool in professional sports industries?
• Where have teams and players looked to expand their profit
making opportunities?
• How would professional sports differ from collegiate
athletics?