Jon C. StuartCEO, Big Guy, Head Honcho, Benevolent & All Knowing

Exalted Ruler

theNMB IncIf we don’t know we

make it up.

What do You Know About Your Competition

Industry and Competitor

Analysis Bruce R. Barringer

R. Duane Ireland

Chapter 5

What is Industry Analysis?• Industry • A group of firms producing a

similar product or service, such as airlines, fitness drinks, furniture, or electronic games.

• Industry Analysis • Business research that focuses on

the potential of an industry.

• In-depth detail understanding

• Economic • Social • Technological • Political • Legal &

Regulatory • International

• Profit margins

• Innovation accelerating or waning

• Input costs rising or falling?

Environmental Trends

Business Trends

Study Environmental & Business Trends

Is it an accessible Industry that is realistic for a new venture to enter?

Question 1Are there potential positions in the industry that avoid some of the negative attributes of the industry as a whole?

Question 3Does it have markets that are ripe for innovation and are there underserved market(s)?

Question 2

Key Questions

• Threat of new entrants• Rivalry among existing

firms• Bargaining power of

buyers• Other related factors

Industry Level Factors

• Assets• Products• Culture• Employee teamwork• Reputation• Other resource

Firm Level Factors

How Industry & Firm-Level Factors Affect Performance

In various studies, researchers have found that from 8% to 30% of the variation in firm profitability is directly attributable to the industry in which a firm competes.

http://www.census.gov/eos/www/naics/

Industry Information?

Study Environmental

& Business Trends

Michael Porter’s Five

Forces Competitive

Model

Techniques Available to Assess Industry Attractiveness

Threat of Substitutes

Threat of New

Entrants

Bargaining Power

of Purchasers

Bargaining Power

of Suppliers

Porter’s Five Forces Competitive Model

Rivalry Among Existing

Competitors

Five Competitive Forces Model

• Framework for understanding the structure of an industry.

• Forces that determine industry profitability.

• Helps determine the average ROI for the firms in an industry.

• Help determine what forces impacts ROI by applying pressure on industry profitability?

• Try to position their firm in a way that avoids or diminishes these forces

Rivalry Among Existing Firms• In most industries, the major

determinant of industry profitability is the level of competition among existing firms.

• Some industries are fiercely competitive, to the point where prices are pushed below the level of costs, and industry-wide losses occur.

• In other industries, competition is much less intense and price competition is subdued.

Factors that determine the

competitive intensity

Rivalry Among Existing

Competitors

Degree of difference between products HighLow

Growth rate of an industry HighLow

Level of fixed costs HighLow

Number & balance of competitors ManyFew

• Industry are highly profitable, the industry becomes a magnet to new entrants.

• Desire to stop this, the increase competition, & average industry profitability decline.

• Seek to keep the number of new entrants low by erecting barriers to entry.

Threat of New

Entrants

Threat of New

Entrants

A condition that creates a disincentive for a new firm to enter an industry.

Seek to erect barriers to entry

Nontraditional/Other Barriers to Entry

Access to Capital

Assembling a World Class Management Team

Passion of Management & Employees for

Success

Economies of Scale

Capital requirements

Government and legal barriers

Access to distribution

channels

Cost advantages

Product Differentation

What are Barrier to Entry?

Evaluating theThreat of New Entrants

Factors that have an impact on the ability of suppliers to exert pressure on buyers

Attractiveness of substitutes

Threat of forward

integration

Supplier concentration

Switching costs

Bargaining Power

of Suppliers

Bargaining Power of Suppliers• Suppress the profitability of the industries

to which they sell by raising prices or reducing the quality of the components they provide.

• Reduces the quality of the components it supplies, the quality of the finished product will suffer, and the manufacturer will eventually have to lower its price.

• When they are powerful relative to the firms in the industry to which they sell, industry profitability can suffer.

Degree of standardization of

supplier’s products

Threat of backward

integration

Buyer group concentration

Buyer’s costs

Bargaining Power

of Purchasers

Buyers demanding price concessions or increases in quality.

Bargaining Power of Buyers• Suppress the profitability of the industries

from which they purchase by demanding price concessions or increases in quality.

• Automobile industry is dominated by a handful of large companies that buy products from thousands of suppliers in different industries.

• Allows the automakers to suppress the profitability of the industries from which they buy by demanding price reductions.

Five Forces Model Assessment Tool

• Assess the attractiveness of an industry by determining the level of threat to industry profitability for each of the forces.

• Threats to industry profitability are high, the firm may want to reconsider entering the industry

• Think carefully about the position it would occupy.

Assessment Tool Industry Attractiveness Using

the Five Forces Model

Industry Assessment Model Tool

• Help determine whether firm should enter an industry is by using the model to answer several key questions.

• The questions and decision tree help a firm project the potential success of a new venture in a particular industry.

To any of these

questions increases the likelihood of

new venture’s success

Yes

No

Are their areas in which we can avoid

or diminish the factors that suppress industry profitability?

Is there a unique position in the

industry that avoids or diminishes the

factors that suppress industry profitability?

Is there a superior business model that industry incumbents

would find hard to duplicate?

Reconsider new venture

No

Is the industry a

realistic place for a new venture

Industry Assessment Modeling Tool

Yes

To all three questions indicates

reconsidering the new venture.

Industry Opportunity

Emerging First-mover advantage

Fragmented Consolidation

Mature Process innovation and after-sale service innovation

DecliningLeadership, establishing a niche market, & pursuing a cost reduction strategy

Global Multi-domestic and global strategies

Industry Types & Opportunities

Competitor Analysis• Detailed analysis of a firm’s

competition.

• Understand the positions of its major competitors

• Understand the opportunities that are available.

• Competitive Analysis Grid -tool for organizing the competitive information

Business offering the same or similar products/services

Businesses that do not currently offer competitive products/service but could in the future.

Businesses that offer products/services that are considered close substitutes

Direct Competitors

Future Competitors

Indirect Competitors

Identifying Competitors

Competitive Intelligence

• Need to understand competitors:

• Strategies

• Behaviors

• Continual process.

• Collect professional & ethical manner.

• Attend conferences and trade shows.

• Purchase competitors’ products.

• Study competitors’ Web sites.

• Set up Google and Yahoo! e-mail alerts.

• Read industry-related books, magazines, and Web sites.

• Talk to customers about what motivated them to buy your product as opposed to your competitor’s product

Ethical ways to obtain information about competitors

Sources of Competitive Intelligence

• See how it stacks up against its competitors.

• Provide ideas for markets to pursue.

• Identify its primary sources of competitive advantage.

Tool for organizing the information a firm collects about its competitors.

Competitive Analysis Grid

Competitive Analysis Matrix For Your Biz/Product

Your Biz Comp A Comp B Comp C

Primary Markets Local Retail

Local Competitive

Nursery

Organic Gardener

Internet Shopping Gardener

Channel Position

producer/retailer 30/70

produce/ retailer 30/70

Reseller high end retail

consumer

Reseller eCommerce

consumer

Key Sales Data

$1-30M sales; $750-$800,000 sales; $350-$400,000 $2.5M- $3.0 M

Product Lines Broad Product Line Mix

Broad Product Line Mix

Narrow Product Line Mix

Broad and Deep Product Line Mix

Buying Habitstrust of product;

personal connection

trust of product; price sensitive

shopper

local Organic Grown/

Not Price Sensitive

reputation; Internet savvy

delivery

Market Size and Share

200,000 share 5%

200,000 share 2-4%

20,000 share 5%

2M - 5M share 1/5%

Competitive Comparison

YOUR BIZ Comp. A Comp. B Comp. CBenefits Features Base 3 2 3

Pricing Base 4 3 3Sales Size/Mix Base 2 3 5

Market Strategy Base 3 5 4

Business Model Base 3 3 4

This is a relative comparison from your perspective of how your target CUSTOMERS might compare your business to your competition

1-Much Worse 2-Worse 3-Equal 4-Better 5-Much Better

Competitive Analysis Grid for Element Bars