Industry & Competitive Analysis

• Dominant economic features of industry

• Competitive forces in industry - strength of

• Industry drivers - impact of

• Which companies in strong/weakest position

• Key Success Factors of industry

• Industry attractiveness

Dominant Economic Features of Industry

• Mkt size • Geographic scope

• Mkt growth rate - stage of growth cycle• No. & relative size of rivals• No. & relative size of buyers

• Prevalence of forward/backward integration• Distribution channels used

• Pace of technological change - process & product

Dominant Economic Features of Industry

•Pdt/service differentiation•Scope for economies of scale

•Learning / experience curve effects•Importance of capacity utilisation

•Resource requirements - ease of entry/exit•Industry profit potential/attractiveness

Porter’s 5 Force Model of Competition

• Rivalry among competitors / sellers

• Threat of substitution

• Threat of new entrants

• Bargaining power of suppliers

• Bargaining power of buyers

Rivalry among Competitors

increases when....• no. and size of competitors increase• product demand growing slower• tactics used to increase unit volume eg. price cuts• low switching costs• one or more competitor dissatisfied with position• exit costs are high• strong co.s outside industry acquire weak firms in

ind.

Threat of New Entrants

• Barriers to entry:

• Economies of scale

• Access to technology/expertise

• Learning curve effects

• Brand preference/customer loyalty

• Resource requirements

• Access to distribution channels

• Regulatory policies

Threat of Substitution

Eg. eyeglasses and contact lensessugar and artificial sweeteners

Depends on:• attractively priced substitutes being available• quality and performance of substitutes• ease of switching

The lower the price of subs., the higher their quality and the lower the user’s switching costs the more intense the

threat of substitution.

Power of Suppliers

Threat depends on:

• significance of item they supply

• size of the customer

• no. of suppliers

• whether switching costs high

• potential for backward integration

Power of Buyers

High if...

• switching costs are low

• small no. of buyers

• if threat of backward integration - eg own label

• if buyers are large eg. tesco - shelf space

• if prestige buyer

Implications of 5 Forces...The stronger the collective impact of the competitive forces, the lower the combined

profit of participant firms.

However, even when industry is highly competitive (forces are strong) it can be

profitable to those who are well positioned.

Successful strategists know what forces exist, the relative strength of each and

understand the industry’s competitive structure as a whole.

Driving Forces

The major underlying causes of change in industry and competitive conditions.

Driving Forces Analysis -• identify the driving forces• assess the impact they will have on the

industry

Important to ensure strategies are as tightly matched to emerging conditions as possible.

Examples of Driving Forces

• Technological change

• Product innovation

• Change in buyer demographics

• Increasing globalisation

• Changing societal concerns

Key Success Factors - of the Industry

The things that most affect the ability of industry members to prosper in the marketplace.

eg. technology related KSFs; manufacturing related KSFs; distribution related KSFs; skills related KSFs.

Important to understand the industry well enough to know what is more important to competitive

success and what is less important.