EPS7500-61

Industry and Competitor Analysis Workbook

Identify Your Industry and Your Market

Primary Industry Industry Segmentation: What segment of the industry are you focusing on?

Objective Assessment of Industry Economic Characteristics

Economic Characteristics Strategic Implications Size of Market Large market means that it may be possible to achieve significant sales by capturing a small % of

share, 5% or less without threatening competitors. To achieve sales of $1million in a $100 million market requires only 1% of the market

Market Growth Rate Fast growth, for example an annual growth rate of 30 percent to 59 percent attracts new entrants into the market. Slow growth causes increased rivalry among competitors and forces weak competitors out.

Supply and Demand If supply exceeds demand, surpluses push prices and profit margins down. If demand exceeds supply, shortages pull prices and profit up.

Industry Profitability High profit industries attract new entrants, i.e., more competitors. Low profit industry conditions encourage exit and potentially increases rivalry.

Barriers to Entry If barriers are high, threat of entry is low, thereby protecting positions and profits of existing firms. Low barriers make existing firms vulnerable.

Changes in Technology/Innovation Rapid changes in technology can increase investment risk in obsoleting equipment. Rapid innovation shortens product lifecycle, leapfrog effect.

Product Characteristics Big ticket items cause buyers to shop around for price. Low priced standardized items give buyers many substitution options.

Vertical Integration Full Vertical integration can increase cost efficiencies significantly over non-integrated firms

Economies of Scale Cost efficiency impact margins and market share

Capital Requirements The larger the requirement, the higher the risk, in terms of investment decisions and timing. The higher the requirement, the higher the barriers to entry/exit.

Step One: Industry Economic Characteristics Worksheet

Economic Characteristics Strategic Implications

Size of Market

Market Growth Rate

Supply and Demand

Industry Profitability

Barriers to Entry

Changes in Technology/Innovation

Product Characteristics

Vertical Integration

Economies of Scale

Capital Requirements

Step Two – How Industries ChangeThe Strategic Implications of Industry Driving Forces

Industry Driving Forces Strategic Implications Changes in Long-Term Growth Rate

Changes in long-term industry growth rate are a force for industry change. Shifts up or down affect the balance between industry supply and buyer demand, entry and exit and ability to capture sales.

Changes in Buyers and Buyer Behavior

A shift in who buys the product/service can change sales and marketing strategies, as well as basic product service features and benefits. Changes in the way buyers use the product can impact price, promotion and packaging.

Process Innovation Frequent technological advances in manufacturing methods and or service delivery can dramatically alter costs, and long term product/service value.

Product Innovation Product innovation is the key to differentiation. It can expand the customer base, it can create an advantage in the marketplace, and can command a higher price.

Marketing Innovation When firms in the industry execute new and innovative marketing campaigns, customer interest can increase, thereby increasing product/service demand.

Entry and Exit of Major Firms When large firms enter a new industry it normally brings innovation, cost efficiency or some other competitive advantage.

Step Two: How Industries Change – Industry Driving Forces Worksheet

Industry Driving Forces Strategic Implications Changes in Long-Term Growth Rate

Changes in Buyers and Buyer Behavior

Process Innovation

Product Innovation

Marketing Innovation

Entry and Exit of Major Firms

Step Three – Competitor Analysis

• Identify your top 4-6 key strategic competitors

• List competitor name, headquarters address

• Research key firmagraphic information:–Number of employees

–Annual Sales

–Market Share

–Years in business

–Reputation

–Other

Step Three – Competitor AnalysisStrategy Profile of Competitors

Strategy Profile of Competitors Strategic Implications

Market Share Approaches:

Grow and Build Build market share by growing faster than the Industry as a whole through aggressive investment in more production capacity or an aggressive investment in marketing

Hold and Maintain Protect the existing market share, grow at a rate equal to the industry average Surrender Share With or without a strong fight

Competitive Strategy:

Cost Leadership Striving to be the low cost provider in the industry Differentiation Pinpointing product or service attributes that are perceived as different and valuable

from the competition Focus Segmenting the market and concentrating efforts on the unique needs of the segment

Key Strategic Competitor Worksheet

Name of Competitor

Firmagraphics Location of Headquarters

# of Employees

Annual Sales

Years in Business

Product Line/Service

Primary Target Audience

Market Share/Competitive Profile Market Share Approach

Competitive Strategy

Competitor Matrix

Name of Competitor

Firmagraphics Location of Headquarters

# of Employees

Annual Sales

Years in Business

Reputation

Other

Market Share/Competitive Profile Market Share Approach

Competitive Strategy

Step Three: Strategic Group Mapping

• Identify the competitive characteristics that differentiate firms in your industry. For Example:–y axis-price/quality, range (high medium low)

–x axis-breadth of product line (full line, limited line, narrow line)

• Plot the firms on a two variable map using pairs of these differentiating characteristics

• Assign competitors that fall in about the same strategy space to the same strategic group

• Draw circles around each strategic group, making the circle proportional to the size of the group share of total industry revenue

Step Four: The Five Competitive ForcesCompetitive

Force Indicators Your Industry Strength of Force:

Strong or Weak

Rivalry between Competitors

Numerous or equally balanced competitors. Slow industry growth. High fixed Costs. Lack of differentiation. Economies of scale. High exit barriers

The Power of Suppliers

Suppliers’ industry is dominated by a few companies. Lack of substitutes for suppliers’ products. Industry is not important to supplier. Suppliers’ product is an important input to the users’ business. When suppliers’ product is highly differentiated and has high switching costs. Threat of forward integration

The Power of Buyers

If buyer is concentrated or purchases are a large% of sellers sales. The product purchased by buyer is undifferentiated. Buyer faces few switching costs. Buyers earn low profits, i.e., price sensitive. Product is unimportant to the quality of buyer’s product/services.

Threat of Substitute Products

The price and availability of acceptable substitutes place a ceiling on price. Limited differentiation between product and substitute.

Threat of New Entrants- Barriers

Economies of scale. Product differentiation. Capital requirements. Switching costs. Access to distribution channels. Cost disadvantages.

Step Five- Key Success Factors to Achieve Competitive Advantage

• Key Success Factors –What are the characteristics your company needs to be successful in the industry?–What is the basis upon which your company can achieve a sustainable competitive advantage?–Competitive Advantages:

• Product/Technology Related• Manufacturing Related• Distribution Related• Marketing Related• Other

Step Five: Key Success Factors

• Technology Related–Scientific research expertise–Product innovation expertise–Industry perception as “technological leader”

• Manufacturing Related–Ability to achieve lower cost operating efficiencies–Ability to improve product quality–High utilization of fixed assets–Ability to leverage economies of scale–Availability of cheap raw material inputs–Recruiting very qualified, highly productive production staff

Step Five: Key Success Factors, (Cont.)

• Distribution Related–Building strong network of wholesaled distributors

–Gaining premium shelf space

–Loyal distributors/dealers

• Marketing Related–Having a well-trained, highly effective sales force

–Reputation for quality

–Product innovations

–Breadth of product line

Step Five: Key Success Factors, (Cont.)

• Customer Service/Total Experience–Offering excellent customer service...beyond expectations–Providing technical assistance to buyers–Prompt delivery–Customer guarantees and warranties

• Other Types of Competitive Advantages–Pleasant, knowledgeable, highly trained and courteous employees–Favorable image/reputation with buyers–Recognition as a leader–Convenient location

Industry, Market and Competitor Analysis - Summary and Conclusion

Industry Factors Conclusions Market Size Does the market have $100 million to $1 billion in sales potential? Is the market growing by 20% or more?

Industry/Market/ Trends What are the major trends driving industry/market change/growth?

The Market Structure Is it an emerging industry or a mature declining industry?. Is the competition fragmented or concentrated?

Potential Problems/Issues for the Industry What are the major issues that may impact the industry i.e., regulatory, legal, political, environmental?

Key Competitors Analysis Who are my main competitors and what are their unique selling propositions?

Competitive Strategy: Are there proprietary barriers to competitor entry? Will my company employ a low cost, differentiation, or focus/niche strategy?