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Markets and Industries: What’s The Difference?Market - Individuals or organizations who are

interested in and willing to buy a good or service to obtain benefits that will satisfy a particular want or need and have the resources to engage in such a transaction

Industry - A group of firms that offer a product or class of products that are similar and are close substitutes for one another

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INTERNAL

- People- Physical-Financial

-Organisational

MICRO ENVIRONMENT

Buyers Suppliers

New Substitutes Entrants

Rivalry

Political Environment

Economic Legal

Socio- Cultural Technology

MACRO ENVIRONMENT

“S” and “W” of SWOT

All SWOT factors

DEEPLIST“O and T” of SWOT

Porters Five Forces

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Assessing Market and Industry AttractivenessMacro-level - The analyses are based on

environmental conditions that affect the market or industry, respectively, as a whole

Micro level - The analyses do not look at the market or the industry overall but at individuals in that market or industry

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Macro Trend Analysis: A Framework for Assessing Market Attractiveness, Macro LevelThe demographic environment - While the

number of specific demographic trends that might influence one marketer or another is without limit, the following major global demographic trends currently influence the fortunes of many companies, for better or worse:AgingAIDSImbalanced population growthIncreased ImmigrationDeclining Marriage Rates

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Macro Trend Analysis: A Framework for Assessing Market Attractiveness, Macro LevelThe sociocultural environment - Those that

have to do with the values, attitudes, and behavior of individuals in a given societyBusiness ethicsFitness and nutrition

The economic environment - Among the most far-reaching of the macro trend componentsEconomic trends often work, to pronounced

effect, in concert with other macro trends

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Macro Trend Analysis: A Framework for Assessing Market Attractiveness, Macro LevelThe regulatory environment:

In every country and across some countries there is a regulatory environment within which local and multinational firms operate

Political and legal trends, especially those that result in regulation or deregulation, can have powerful impact on market attractiveness

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Macro Trend Analysis: A Framework for Assessing Market Attractiveness, Macro LevelThe technological environment:

Technological progress is unlikely to abateDevelopments in telecommunications and

computing have led to the rapid convergence of the telecommunications, computing, and entertainment industries

The natural environment:Turning problems into opportunities

Finding ways to save energy Finding new energy sources

Opportunities in developing green productsImpact of depletion of natural resources

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Porter’s model •An important planning tool set for assessing the competitive arena. •It helps firms appreciate where competitive power lies•Firms can take advantage of strengths and opportunities and improve their weaknesses.

Porter’s model of competitive forces assumes that there are five competitive forces that define the competitive power in a business situation:

1)Threat of substitute products2)Threat of new entrants3)Intense rivalry among existing partners4)Bargaining power of suppliers5)Bargaining power of buyers

Porter’s Five Forces Model

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Potential Entrants (Threat of mobility)

Industry Rivalry

Suppliers (Supplier Power)

Buyers (Buyer Power)

Substitutes (Threat of substitutes)

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Intensity of Direct RivalryIntense rivalry increases where:

There are numerous competitors Industry growth is slow/maturity stage Product is difficult to differentiate Fixed costs are high Exit barriers are high Rival companies are ‘diverse’

E.g. local vs international

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The Power of BuyersA buyer group is powerful if

Buying power is concentrated (eg: just a few big buyers)

Products they buy are undifferentiated (eg: nuts and bolts; pipelines, airline seats)

The buyer has extensive choice The item purchased is not a critical input The buyer could reasonably integrate

backwards

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Power of SuppliersA supplier group is powerful if

Supply industry is highly concentrated (eg: only a few suppliers such as suppliers of computer processors, OPEC)

The product is strongly differentiated (eg: each supplier produces something very unique)

There is no good substitute product Eg: specialist medication

The supplier could reasonably integrate forwards

E.g. Intel or Microsoft start manufacturing PCs or smartphones

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Forward & backward integrationManufacturer of

Fuel injectionsystems

Enginemanufacturer

Manufacturer ofMotor cars

Sells to

Sells toForwardintegration

Backwardintegration

In order to deal with power of buyers or suppliers, firms may integrate forward (purchase/form alliances with buyers) or integrate backward (purchase/form alliances with suppliers.

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Threat from Substitutes• Elasticity of demand for an industry depends on

availability of substitutes for the industry’s products

Steel, aluminium, glass and plastic are often substitutes as container materials

Private cars, taxis, minicabs, buses and walking are substitutes for the Dubai Metro

• An industry is ultimately constrained by substitutes

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Today we have other threats….The threats of disruptive technologies

Eg: Low Cost Airlines / High-Speed Trains/ Desktop Video Conferencing

Technology convergence

Eg. who needs to buy a digital camera when you can get one with your phone?

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Threat of New EntrantsThreat of entry dictated by entry barriers

Cost advantages The experience effect Economies of scale

Product differentiation & branding Capital requirements Access to distribution channels Legal and regulatory barriers

E.g. patent protection in pharmaceuticals

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A Framework for Competitor AnalysisWhat Drives the Competitor

What the Competitor Is doing and can do

Future GoalsAt all levels of management and in multiple dimensions

Current StrategyHow the business iscurrently competing

Competitor’s Response Profile•Is the competitor satisfied with its current position?•What likely moves or strategy shifts will the competitor make?•Where is the competitor vulnerable?•What will provoke the greatest and most effective retaliation by the competitor?

AssumptionsHeld about itselfand the industry

CapabilitiesBoth strengths and weaknesses

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Three Generic StrategiesSTRATEGIC ADVANTAGE

STR

ATE

GIC

TA

RG

ET

DIFFERENTIATION

OVERALL COST LEADERSHIP

FOCUS

Uniqueness Perceived by the customer Low Cost Position

Industrywide

ParticularSegment Only

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Generic Competitive StrategiesGeneric Strategy

Commonly Required Skills and Resources

Common Organizational Requirements

Overall Cost Leadership

Sustained capital Investment and access to capital, Process engineering skills, Intense supervision of labor, Products designed for use in manufacture, Low cost distribution system

Tight cost control, Frequent detailed control reports, Structured organization and responsibilities, Incentives based on meeting strict quantitative targets.

Differentiation Strong marketing abilities, Positioning, Product engineering, Creative flair, Strong capability in basic research, Corporate reputation for quality or technological leadership, Long tradition in the industry or unique combination of skills drawn from other businesses, Strong cooperation from channels

Strong coordination among functions in R&D, product development, and marketing, Subjective measurement and incentives instead of quantitative measures, Amenities to attract skilled labor, Scientists or creative people

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Focus Combination of above policies directed at the particular strategic target market

Combination of the above policies directed at the particular strategic target

-Contd.

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Challenges In Macro-level Market And Industry AnalysisIn order to analyze the attractiveness of one’s

market or industry, one must first identify exactly which market or industry is to be analyzed On the market side, the challenge often lies in

sizing the relevant marketOn the industry side, there’s the question of

how narrowly or broadly to define one’s industry

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Challenges In Macro-level Market And Industry AnalysisInformation sources for macro-level analyses:

Trade associations and trade magazinesWebsites of local, state, and federal

governmentsThe key outputs of a competent macro trend

analysis should include both quantitative and qualitative data

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Understanding Markets at the Micro LevelSome tests to be met for the market offering

to be attractive:There’s a clearly identified source of customer

pain, for some clearly identifiable set of target customers, which the offering resolves

The offering provides customer benefits that other solutions do not

The target segment is likely to growThere are other segments for which the

currently targeted segment may provide a springboard for subsequent entry

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Understanding Industries at the Micro LevelOpportunities are attractive when the

company itself meets most or all of the following tests:It possesses something proprietary that other

companies cannot easily duplicate or imitateThe business has or can develop superior

organizational processes, capabilities, or resources that others would find it difficult to imitate or duplicate

It’s business model is economically viable

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The Key to the Pursuit of Attractive OpportunitiesOpportunities are only as good as the people

who will pursue themSome crucial questions

Does the opportunity fit what we want to do?Do we have the people who can execute on

whatever it takes to be successful in this particular industry?

Do we have the right connections?

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Mission, Aspirations, and Risk PropensityEveryone and every company has views on

how much risk is acceptableA particular opportunity must also measure

up to the expectations of the people who will pursue it

Whatever the tests for a given individual or company, they must be met if an opportunity is to be deemed attractive

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Ability to Execute on the Industry’s Critical Success FactorsTwo key questions to ask in identifying one’s

critical success factors (CSFs):Which few decisions or activities are the ones

that, if gotten wrong, will almost always have severely negative effects on company performance?

Which decisions or activities, done right, will almost always deliver disproportionately positive effects on performance?

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It’s Who You Know, Not What You KnowThe people who are the best connected will

be the ones who are best placed to change strategy before others know the winds have changed

Having a well-connected team in place enhances the attractiveness of the opportunity itselfThe team is more likely to be able to ride out

the inevitable winds of change

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Anticipating and Responding to Environmental TrendsImpact and timing of event

Opportunity/threat matrix: Enables the examination of a large number of events in such a way that management can focus on the most important ones

Trends will always be present, whether marketing managers like them or not

The question is what managers can do about them