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Industry Analysis

Key Issue: Analyzing a Market’s Trends andAttractiveness

Key Assumption: Level of Competition has been set*

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LevelsLevels of Competition*of Competition*

Diet lemon limes

Baseball cards

Fruit flavored colas

Coffee

DietCoke

DietPepsi

Diet-Rite cola

Bottled water

Lemon limes

Regularcolas

Beer

Juices

Wine

Fast food

Tea

Video rentals

Icecream

Product form competition: Diet colas

Product category competition: Soft drinks

Generic competition: Beverages

Budget competition: Food and entertainment

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What You Need to Do/Know FirstWhat You Need to Do/Know First

• Choose the “Right” Level of CompetitionEx) Product Category Level Soft Drinks; Snack/Health Bar

• Industry Analysis = (Product) Category Analysis

• Level of Discussion for Industry Analysis: An industry! (not an individual firm)

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Key Elements of IndustryKey Elements of Industry Analysis**Analysis**

1. Market Factors (at the Aggregate Level)*

2. Competitive Factors*

Michael Porter’s Framework*

3. Environmental Factors

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I. Market FactorsI. Market Factors for Industry Analysis* for Industry Analysis*

• Category Size: Sales Volume or $$ two sources of info• http://www.beerinsights.com• http://www.npd.com• http://www.autonews.com• http://www.beverage-digest.com/

• Growth Rate• Stage in Product Life Cycle* • Cyclicity & Seasonality• Marketing Mix (General Trends)

• Product differentiation: Macro (http://www.census.gov) and Micro

(advertising $$ or number of product lines or skus)• Profits & Financial Ratios (http://www.sec.gov) SIC: 5600

http://www.hbsp.harvard.edu

• Library source of information:•

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II. II. Competitive FactorsCompetitive Factors for Industry Analysis for Industry Analysis

Industry Concentration*1. Intensity of Rivalry*2. Power of Buyers (Two Types) 3. Power of Suppliers4. Pressure from Substitutes5. Threat of Entries and ExitsCapacity Utilization

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Industry Concentration MeasuresIndustry Concentration Measures

1. The share of the largest firm

2. The combined shares of the three largest firms

3. The number of firms with at least x percent of the market (e.g., 1 percent)

4. The share of the largest firm divided by the share of the next three largest competitors

5. Herfindahl-Hirschman Index (HHI):-The Sum of Squared Shares of the Firms in the Industry- Use- Thresholds: below 1000; 1,000 to 1,800; above 1,800

http://www.census.gov/epcd/www/econ97.html

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Characteristics of Characteristics of Intensive RivalryIntensive Rivalry

Many or Balanced Competitors Slow Growth High Fixed Costs Lack of Product DifferentiationAny Example?

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Buyer PowerBuyer Power Is Is HigherHigher When When Buyer accounts for a large percentage of the

industry’s output. Product is undifferentiated. Threat of backward integration. Buyer has full information. Example:

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Supplier PowerSupplier Power Is Is HigherHigher When When Suppliers are concentrated. No or few Substitute for the product. Differentiated product/high switching cost. Limited Supply.Example: LCD in the past

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Industry Attractiveness based on Industry Attractiveness based on Market FactorsMarket Factors

High LowSize Large Small

Growth High Slow

Stage in life cycle Early Late

Cyclicity Low High

Seasonality Low High

Marketing spending Low High

Profits High Low

Financial ratios High Low

Attractiveness

Market Factors

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Industry Attractiveness based on Industry Attractiveness based on Competitive FactorsCompetitive Factors

High LowConcentration Low High

Power of buyers Low High

Power of suppliers Low High

Rivalry Low High

Pressure from substitutes Low High

Capacity utilization High Low

Threat of entry Low High

Attractiveness

Competitive Factors

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III. (Macro) III. (Macro) Environmental Environmental FactorsFactors

Technological* Economic* Social Political Regulatory*

For your project, choose 1 or 2 only the most relevant factors from above

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Major Topics for Consumer BehaviorMajor Topics for Consumer Behavior

1. Consumer Decision Process

2. Types of Buying Decisions

3. Influences on the Rate of

New Product Adoption (RCCDC)

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What We Need to Know about Current and What We Need to Know about Current and Potential Customers*Potential Customers*

• Who buys and uses the product?• What customers buy and how they use it?• Where customers buy?• When customers buy?• How customers choose?• Why they prefer a product over others?• How do they respond to marketing programs?• Will they buy it (again)?

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For competitor analysis, you need to knowFor competitor analysis, you need to knowWho are Your Major Competitors?

Analyzing Product Features*

Major Competitors’ Objectives

Major Competitors’ Strategies* = behaviorSegmentationTarget MarketCore Strategy (Positioning)

Marketing Mix of Each Firm

Major Competitors’ Capabilities/Resources

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Example) Energy Bars: Example) Energy Bars: Competitor Feature/Strategy Matrix*Competitor Feature/Strategy Matrix*