chapter 04 slides

8/3/2019 Chapter 04 Slides

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Further Topics in Industry

and Competitive Analysis

Extending 5-forces analysiso Does industry matter?

o Complements

o Dynamic competition

Game Theory

Competitor Analysis

Segmentation

Strategic Groups

OUTLINE


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D

oes Industry Matter?

Percentage of variance in firms return on assets

explained by:

Industryeffects

Firm-specificeffects

Unexplainedvariance

Schmalensee

(1985)

19.6% 0.6% 80.4%

Rumelt (1991) 4.0% 44.2% 44.8%

McGahan &Porter 1997)

18.7% 31.7% 48.4%

Hawawini et al

(2003)

8.1% 35.8% 52.0%


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The Value Net

COMPANY

CUSTOMERS

SUPPLIERS

COMPLEMENTORSCOMPETITORS


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SUPPLIERS

POTENTIAL

ENTRANTSSUBSTITUTES

BUYERS

INDUSTRY

COMPETITORS

Rivalry amongexisting firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of

new entrantsThreat of

substitutes

COMPLEMENTS

The suppliers ofcomplements create

value for the industry

and can exercise

bargaining power

Five Forces or Six? Introducing Complements


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Dynamic Competition

Porter framework assumes:

(a) industry structure drives competitive behavior

(b) Industry structure is (fairly) stable.

But, competition also changes industry structure:

Schumpeterian Competition: A perennial gale of creativedestructionwhere firm strategies continually transforms industry

structure innovation overthrows established market leaders

Hypercompetition: intense and rapid competitive

moves.creating disequilibrium through continuously creating

new competitive advantages and destroying, obsolescing or

neutralizing opponents competitive advantages

Implication: Under dynamic competition, 5-forces framework is

less usefulCompetitive behavior and industry structure jointly

determined by underlying conditions of technology, demand &

costs


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The Contribution ofGame Theory

to Competitive Analysis

Main value:1. Framing strategic decisions as interactions between competitors

2. Predicting outcomes of competitive situations involving a few,

evenly-matched players

Some key concepts:

1. Competition and CooperationGame theory can show conditionswhere cooperation more advantageous than competition

2. Deterrencechanging the payoffs in the game in order to deter

a competitor from certain actions

3. Commitmentirrevocable deployments of resources that

give creditability to threats

4. Signalingcommunication to influence a competitor's decision

Problems of game theory:Useful in explaining past competitive behaviorweak in predicting

future competitive behavior.

Whats the problem? Multitude of models, outcomes highly sensitive

to small changes in assumptions


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PREDICTIONS

What strategy changes

will the competitor

initiate?

How will the competitor

respond to our strategic

initiatives?

OBJECTIVES

What are competitors current goals?

Is performance meeting there goals?

How are its goals likely to change?

STRATEGY

How is the firm competing?

ASSUMPTIONS

What assumptions does the competitor

hold about the industry and itself?

RESOURCES & CAPABILITIES

What are the competitors key

strengths and weaknesses?

A Framework for Competitor Analysis


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Segmentation Analysis: The

Principal Stages

Identify key variables

and categories.

Construct a segmentation matrix

Analyze segment attractiveness

Identify KSFs in each segment

Analyze benefits of

broad vs. narrow scope.

Identify segmentation variables

Reduce to 2 or 3 variables

Identify discrete categories foreach variable

Potential for economies

of scope across segments

Similarity of KSFs

Product differentiation benefits

of segment focus


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Opportunities for

Differentiation

Characteristics

of the Buyers

Characteristics

of the Product

Industrial buyers

Household buyers

Distribution channel

Geographical

location

Size

Technical

sophistication

OEM/replacement

Demographics

Lifestyle

Purchase occasion

SizeDistributor/broker

Exclusive/

nonexclusive

General/special

list

Physical size

Price level

Product features

Technology design

Inputs used (e.g. raw materials)

Performance characteristics

Pre-sales & post-sales services

The Basis for Segmentation: Customer

and Product Characteristics


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Opportunities for

Differentiation

Characteristics

of the Buyers

Characteristics

of the Product

Industrial buyers

Household buyers

Distribution channel

Geographical

location

*Size

*Technical

sophistication

*OEM/replacement

*Demographics

*Lifestyle

*Purchase occasion

*Size*Distributor/broker

*Exclusive/

nonexclusive

*General/special

list

*Physical size

*Price level

*Product features

*Technology design

*Inputs used (e.g. raw materials)

*Performance characteristics

*Pre-sales & post-sales services


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Segmenting the European Metal Can Industry

Food Fruit Juice P et food Soft dr ink Beer Oil

Steel 3-piece

Steel 2-piece

Aluminum 2-piece

General cans

Composite cans

Aerosol cans

France

Germany

Spain/P

ort.

Italy


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Segmenting the World Automobile Market

REGION

US& Canada W.Europe E.Europe Asia Lat America Australia Africa

Luxury Cars

Full-size sedans

Mid-size sedans

Small sedans

Station wagons

Passenger minivans

Sports cars

Sport-utility

Pick-up trucks


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0

5

0

10

15

20

25

%

100%

Share of industry revenue

Auto

loans

Leasing

Warranty

Gasoline

Auto

insurance

Aftermarket

partsAuto

rental

Auto

manufacturing

New car

dealers Used car dealers

Service & repair

Vertical Segmentation & Industry Profit Pools

The US Auto Industry


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SEGMENT

Low price bicycles sold primarily

through department and discount

stores, mainly under the retailers

own brand (e.g. Sears Free Spirit);

KEY SUCCESS FACTORS

* Low-costs through global sourcing of components

& low-wage assembly.

* Supply contract with major retailer.

Leading competitors: Taiwanese & Chinese assemblers,

some U.S manufacturers, e.g. Murray Ohio, Huffy

Medium-priced bicycles soldprimarily under manufacturers brand

name and distributed mainly through

specialist bicycles stores;

*Cost efficiency through large scale operation and

either low wages or automated manufacturing.

*Reputation for quality (durability, reliability) through

effective marketing to dealers and/or consumers.

* International marketing & distribution.

Leading competitors: Raleigh, Giant, Peugeot, Fuji

*Quality of components and assembly, Innovation indesign (e.g. minimizing weight and wind resistance).

*Reputation (e.g. through success in racing, through

effective brand management).

*Strong dealer relations.

Similar to low-price bicycle segment.

High-priced bicycles for enthusiasts.

Childrens bicycles (and tricycles) sold

primarily through toy retailers (discount

toy stores, department stores, andspecialist toy stores).

Segmentation and Key Success Factors in the U.S. Bicycle Industry


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Strategic Group Analysis

A strategic group is a group of firms in an industry

following the same or similar strategy.

Identifying strategic groups:

Identify principal strategic

variables which distinguishfirms.

Position each firm in relation

to these variables.

Identify clusters.


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Broad

PRODUCT

RANGE

Narrow

National GEOGRAPHICAL SCOPE Global

NATIONALLY- FOCUSED,SMALL, SPECIALIST

PRODUCERS e.g., Bristol(U.K.), Classic Roadsters

(U.S.), Morgan (U.K.)

NATIONALLY FOCUSED,INTERMEDIATE LINE

PRODUCERS

e.g. Tofas, Proton, Maruti

First Auto Works (China)

REGIONALLY-FOCUSEDBROAD-LINE

PRODUCERS

e.g. Fiat, PSA, Renault,

Kia,

PERFORMANCECAR PRODUCERS

e.g., Porsche,Ferrari (owned by

Fiat) Maserati, Lotus

LUXURY CARMANUFACTURERS

e.g.,A

ston Martin, BMW,Rolls Royce (owned by VW)

GLOBAL SUPPLIERS OF

NARROW MODEL RANGE

e.g., Subaru, Isuzu, Suzuki,Saab, Hyundai, Daihatsu

GLOBAL, BROAD-LINEPRODUCERS

e.g., GM, Ford, Toyota,

Nissan, Honda, VW,

DaimlerChrysler

Strategic Groups in the World Automobile Industry


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Geographical Scope

0 10 20 30 40 50 60 70 80

VerticalBalance

0

0.5

1.0

1.5

2.0

NATIONAL

PRODUCTION

COMPANIES

INTEGRATED

INTERNATIONAL

MAJORS

NATIONALLY-FOCUSED

DOWNSTREAMCOMPANIES

INTEGRATED

DOMESTICOIL COMPANIES

Royal Dutch

-Shell Gp.

Exxon

-Mobil

Statoil

PDVSA

Kuwait Petroleum

Petronas

Petrobras

RepsolNippon

Sunoco

BP-Amoco

Chevron

Texaco

Phillips

Peme

xIndian Oil

ENI

INTEGRATED OIL

MAJORS

INTERNATIONAL

UPSTREAM,

REGIONALLY

FOCUSED

DOWNSTREAMIran

NOC

Neste

Ashland

Conoco Phillips

ENI

Elf-Fina-Total

Repsol YPF INTERNATIONAL

DOWNSTREAM

OIL COMPANIES

INTERNATIONAL

UPSTREAM

COMPANIES

Dana Petroleum

Premier

Oil

PetroChinaLukoil

Apache

Valero

Strategic Groups Within the World Petroleum Industry

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