Conducting an Industry Analysis

Seven Questions for Industry Analysis1. What are the industry dominant economic traits?2. What competitive forces are at work in the industry and how strong are they?3. What are the forces of change in the industry and what impact will they have?4. Which companies are in the strongest/weakest competitive position?5. Whos likely to make what competitive moves next?6. What key factors will determine success or failure?7. How attractive is the industry in terms of its prospects for above average profitability?

Q1. What are the industry dominant economic traits?Market size (Small markets dont attract big fish)Scope of competitive rivalryMarket/industry growth rate (life cycle)Fast growth breeds new entry; slowdowns lead to increased competition.Number of rivals and their sizeNumber of buyers and their sizeLevel of backward and forward integrationTechnological change (rate and scope)Level of differentiation between firms productsOpportunities for economies of scaleEase of entry and exitCapital requirements

Q1: Industrys Dominant Economic TraitsMarketSizeScopeGrowth rateGrowth cycle# & size of competitorsDistribution channelsStructureForward IntegrationBackward IntegrationProductDifferentiationPotential for economies of scaleLearning effectsEntry / exit costsTechnological change

Q2. What competitive forces are at work in the industry and how strong are they?Porters Five Forces. Forces influencing industry and competitive advantage:Competitive Intensity (Rivalry Among Sellers)Barriers to Entry (Potential for New Entrants)Bargaining Power of SuppliersBargaining Power of CustomersThreat of Substitute Products

pg. 33 in Applegate

Q2. What competitive forces are at work in the industry and how strong are they?The rivalry among sellersGreater the rivalry, lower the avg. profitabilityWhat causes rivalry to be strong or weak?# of competitorsSize / capability of competitorsFinancial status of competitorsSlow growthCost of exit barriersSwitching costs for customersVariability in demand

Q2. What competitive forces are at work in the industry and how strong are they?Potential new entrantsBarriers to entryEconomies of scaleLearning curve effectsCustomer loyalty / brand preferencesResource / investmentAccess to distributionRegulationPatents, proprietary technologyLevel of industry profits

Q2. What competitive forces are at work in the industry and how strong are they?The relative power of suppliersImportance of componentSwitching costsBackward integration threatsSubstitutesThe relative power of buyersSwitching costs% market share / size# of suppliersProduct standardizationPotential for backward integration

Q2. What competitive forces are at work in the industry and how strong are they?Substitute productsPlace a ceiling on prices and profits of industryInvite comparison shoppingE.g., eyeglasses vs. contact lensesE.g., sugar vs. artificial sweeteners

Q3. What are the forces of change in the industry and what impact will they have?

The most dominant forces the cause the industry to change are called driving forcesTask 1 - identify the driving forcesTask 2 - assessing their impact on the industry (few are important, generally)Common Driving ForcesChanges in long term industry growth rateChanges in who buy the products and for what reasonProduct innovationTechnological changeMarketing innovationIncreasing globalizationRegulatory changesChanging societal concerns, attitudes and lifestylesEnvironmental scanning

Q4. Which companies are in the strongest/weakest competitive position?Using the strategic group mapping: two dimensional representation according to the competitive characteristics of the competitors in the industryAxes should not be correlatedSize of circles proportional to combined salesThe closer the circles, the stronger the rivalrySee http://i.i.com.com/cnwk.1d/html/b/305,1,Competitive and http://www.quickmba.com/strategy/pest/ for more information.Competitive characteristicsProduct line/merchandise mix

Q5. Whos likely to make what competitive moves next?In order to outmaneuver your competition you have to evaluate the competitors future moves.Identify competitors strategiesEvaluate who are the major players-- nowWho will be the major playersEvaluate what the major players are going to do

Q6. What key factors will determine success or failure?Key success factors (KSF) are crucial elements that lead to success.What are they now? What will they be?In beer production KSF can be brewing skillsIn retail apparel KSF can be low cost, superior service, superior designIn your industry, KSF=????

Q7. How attractive is the industry in terms of its prospects for above average profitability?Growth potentialDriving forcesEntry/exitStability of demandCompetitive forcesRisk and uncertaintyCompetition and its impact on the industrys future

7 Questions1. What are the industry dominant economic traits?2. What competitive forces are at work in the industry and how strong are they?3. What are the forces of change in the industry and what impact will they have?

7 Questions4. Which companies are in the strongest/weakest competitive position?5. Whos likely to make what competitive moves next?6. What key factors will determine success or failure?7. How attractive is the industry in terms of its prospects for above average profitability?