Assessing Category Attractiveness

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• Assessing Category Attractiveness
• Jan 20
• BUSI 567
• Spring 2009

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Aggregate Category Factors

• Category size
• Category growth
• Stage in product life cycle
• Sales cyclicity
• Seasonality
• Profits

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Attractiveness of Market Variables
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Category Attractiveness over the Product Life
Cycle
Sales
Stage of product life cycle
Time
Decline Moderate Negative Low
Introduction Small Low Low
Maturity Large Low Low/high
Growth Moderate High High
Category size
Category growth
Category attractiveness
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Porters Five Forces
Threat of New Entrants
Competitive rivalry within an industry
Bargaining power of suppliers
Bargaining power of customers
Threat of Substitutes
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Category Factors

• Threat of new entrants
• European hypermarts e.g., Carrefour
• Bargaining power of buyers (e.g., Kroger)
• Bargaining power of suppliers
• Large farming communities?
• Firms like Cargil?
• Current category rivalry
• Pressure from substitutes
• Think breakfast !
• Category capacity automobile market

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Buyer Bargaining Power is High When

• Product bought is a large percentage of the
  buyers cost.
• Product bought is undifferentiated.
• Buyers earn low profits.
• Buyer threatens to backward integrate.
• Buyer has full information.
• Substitutes exist for the sellers product or
  service.

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Supplier Bargaining Power is High When

• Suppliers are highly concentrated, that is,
  dominated by a few firms.
• There is no substitute for the product supplied.
• Supplier has differentiated its product or built
  in switching costs.
• Supply is limited.

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Major Characteristic of Categories Exhibiting
Intensive Rivalries

• Many or balanced competitors
• Slow growth
• High fixed costs
• Lack of product differentiation
• Personal rivalries

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Impact of Category Factors on Attractiveness
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Environmental Factors

• Technological e.g., LCD screens
• Political e.g., oil drilling
• Economic e.g., availability of credit
• Regulatory e.g., smoking
• Social e.g. trends

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LCD TVs Category Attractiveness Summary
Category Size

• USD 1 Billion by 2010

• Category has many major players Sony, Samsung,
  Philips
• New entrants Vizio !

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LCD TVs Attractiveness Summary (cont)

• Global growth rate of 116

Category Growth

• Category expanding new competitors are entering,
  existing brands are expanding with new products
  and flavors, market penetration and usage
  occasion is increasing

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LCD TVs Attractiveness Summary (cont)

• Reaching Maturity new innovation required.

Product Life Cycle
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LCD TVs Attractiveness Summary (cont)

• Seasonal thanksgiving, NFL, NBA, Olympics,
  March Madness!

Sales Cyclicity
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LCD TVs Attractiveness Summary (cont)

• Tough to gauge product a part of larger
  portfolio.

Profits

• Increased category competitiveness may lead to
  lower pricing and profits

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LCD TVs Attractiveness Summary (cont)
Aggregate Market

• Best Buy might launch own brands?
• Exclusive dealerships?
• Online sales

Distribution
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LCD TVs Attractiveness Summary (cont)
Environmental

• Energy consumption?
• Heat?

Political/ Regulatory
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LCD TVs Attractiveness Summary (cont)
Environmental

• As lives get busier, impact on family social
  dynamics?
• Impact on kids?

Social
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PDA Category Attractiveness Analysis
Aggregate Market Factors
Attractiveness
Market Size

• 2.3 billion

Market Growth
0-40
Product Life Cycle
Growth
Profits
Good
Sales Cyclicity
one
Sales Seasonality
one
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PDA Category Attractiveness Analysis
Category Factors
Attractiveness
Threat of New Entrants

• Moderate RD required, distribution

Bargaining Power of Buyers
Low, high switching costs
Bargaining Power of Suppliers
Moderate PCs use similar components
Category Rivalry
Intense
Pressure from Substitutes
High
Category Capacity
Not a problem for now
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PDA Category Attractiveness Analysis
Environmental Factors
Attractiveness
Technological

• Very sensitive

Political/ Regulatory
Telecommunications deregulation
Economic
Relatively inexpensive
Social
More work done on the road