Further Topics in Industry and Competitive Analysis

1
Further Topics in Industry and Competitive
Analysis
OUTLINE

• Extending 5-forces analysis
• Does industry matter?
• Complements
• Dynamic competition
• Game Theory
• Competitor Analysis
• Segmentation
• Strategic Groups

2
Does Industry Matter?
3
The Value Net
CUSTOMERS
COMPANY
COMPLEMENTORS
COMPETITORS
SUPPLIERS
4
Five Forces or Six? Introducing Complements
The suppliers of complements create value for
the industry and can exercise bargaining power
SUPPLIERS
Bargaining power of suppliers
INDUSTRY COMPETITORS
COMPLEMENTS
Threat of new entrants
POTENTIAL ENTRANTS
Threat of substitutes
SUBSTITUTES
Rivalry among existing firms
Bargaining power of buyers
BUYERS
5
Dynamic Competition

• Porter framework assumes
• industry structure drives competitive behavior
• Industry structure is (fairly) stable.
• But, competition also changes industry structure
• Schumpeterian Competition A perennial gale of
  creative destruction where firm strategies
  continually transforms industry structure
  innovation overthrows established market leaders
• Hypercompetition intense and rapid competitive
  moves.creating disequilibrium through
  continuously creating new competitive advantages
  and destroying, obsolescing or neutralizing
  opponents competitive advantages
• Implication Under dynamic competition, 5-forces
  framework is
• less usefulCompetitive behavior and industry
  structure jointly determined by underlying
  conditions of technology, demand costs

6
The Contribution of Game Theory to Competitive
Analysis

• Main value
• Framing strategic decisions as interactions
  between competitors
• Predicting outcomes of competitive situations
  involving a few,
• evenly-matched players

• Some key concepts
• Competition and CooperationGame theory can show
  conditions
• where cooperation more advantageous than
  competition
• Deterrencechanging the payoffs in the game in
  order to deter
• a competitor from certain actions
• Commitmentirrevocable deployments of resources
  that
• give creditability to threats
• Signalingcommunication to influence a
  competitor's decision

Problems of game theory Useful in explaining
past competitive behaviorweak in predicting
future competitive behavior. Whats the problem?
Multitude of models, outcomes highly sensitive
to small changes in assumptions
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A Framework for Competitor Analysis
OBJECTIVES What are competitors current
goals? Is performance meeting there goals? How
are its goals likely to change?
STRATEGY How is the firm competing?

• PREDICTIONS
• What strategy changes
• will the competitor
• initiate?
• How will the competitor
• respond to our strategic
• initiatives?

ASSUMPTIONS What assumptions does the
competitor hold about the industry and itself?
RESOURCES CAPABILITIES What are the
competitors key strengths and weaknesses?
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Segmentation Analysis The Principal Stages

• Identify key variables
• and categories.
• Construct a segmentation matrix
• Analyze segment attractiveness
• Identify KSFs in each segment
• Analyze benefits of
• broad vs. narrow scope.

Identify segmentation variables Reduce to 2 or 3
variables Identify discrete categories for each
variable
Potential for economies of scope across
segments Similarity of KSFs Product
differentiation benefits of segment focus
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The Basis for Segmentation Customer and Product
Characteristics

• Size
• Technical
• sophistication
• OEM/replacement

Industrial buyers
Characteristics of the Buyers

• Demographics
• Lifestyle
• Purchase occasion

Household buyers

• Size
• Distributor/broker
• Exclusive/
• nonexclusive
• General/special
• list

Distribution channel
Opportunities for Differentiation
Geographical location

• Physical size
• Price level
• Product features
• Technology design
• Inputs used (e.g. raw materials)
• Performance characteristics
• Pre-sales post-sales services

Characteristics of the Product
10
Size Technical sophistication OEM/replacemen
t
Industrial buyers
Characteristics of the Buyers
Demographics Lifestyle Purchase occasion
Household buyers
Size Distributor/broker Exclusive/
nonexclusive General/special list
Distribution channel
Opportunities for Differentiation
Geographical location
Physical size Price level Product
features Technology design Inputs used (e.g.
raw materials) Performance characteristics Pre-s
ales post-sales services
Characteristics of the Product
11
Segmenting the European Metal Can Industry
12
Segmenting the World Automobile Market
US Canada W.Europe E.Europe
Asia Lat America Australia
Africa Luxury cars Full-size cars Mid-size
cars Small cars Station wagons Passenger
vans Sports cars Sport-utility Pick-up trucks
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Vertical Segmentation Industry Profit
Pools The US Auto Industry
25





20
Service repair
Leasing
Operating margin

15
Warranty
Aftermarket parts

Auto manufacturing
10
Auto rental
Auto insurance
Auto loans
New car dealers
5
Used car dealers
0
Gasoline
100
0
Share of industry revenue
14
Segmentation and Key Success Factors in the U.S.
Bicycle Industry
SEGMENT
KEY SUCCESS FACTORS
Low-costs through global sourcing of components
low-wage assembly. Supply contract with
major retailer. Leading competitors Taiwanese
Chinese assemblers, some U.S manufacturers, e.g.
Murray Ohio, Huffy
Low price bicycles sold primarily through
department and discount stores, mainly under the
retailers own brand (e.g. Sears Free Spirit)
Cost efficiency through large scale operation
and either low wages or automated
manufacturing. Reputation for quality
(durability, reliability) through effective
marketing to dealers and/or consumers.
International marketing distribution. Leading
competitors Raleigh, Giant, Peugeot, Fuji
Medium-priced bicycles sold primarily under
manufacturers brand name and distributed mainly
through specialist bicycles stores
Quality of components and assembly, Innovation
in design (e.g. minimizing weight and wind
resistance). Reputation (e.g. through success in
racing, through effective brand
management). Strong dealer relations.
High-priced bicycles for enthusiasts.
Childrens bicycles (and tricycles)
sold primarily through toy retailers (discount
toy stores, department stores, and specialist
toy stores).
Similar to low-price bicycle segment.
15
Strategic Group Analysis

• A strategic group is a group of firms in an
  industry that follow the same or similar
  strategies

• Identifying strategic groups
• Identify principal strategic variables which
• distinguish firms.
• Position each firm in relation to these
• variables.
• Identify clusters.

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Strategic Groups in the World Automobile Industry
Broad
GLOBAL, BROAD-LINE PRODUCERS e.g., GM, Ford,
Toyota, Nissan, Honda, VW, DaimlerChrysler
REGIONALLY-FOCUSED BROAD-LINE PRODUCERS e.g.
Fiat, PSA, Renault, Kia,
GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g.,
Subaru, Isuzu, Suzuki, Saab, Hyundai, Daihatsu
NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS
e.g. Tofas, Proton, Maruti First Auto Works
(China)
PRODUCT RANGE
LUXURY CAR MANUFACTURERS e.g., Aston Martin, BMW,
Rolls Royce (owned by VW)
NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS
e.g., Bristol (U.K.), Classic Roadsters (U.S.),
Morgan (U.K.)
PERFORMANCE CAR PRODUCERS e.g., Porsche, Ferrari
(owned by Fiat) Maserati, Lotus
Narrow
National
GEOGRAPHICAL SCOPE
Global
17
Strategic Groups Within the World Petroleum
Industry
INTERNATIONAL UPSTREAM COMPANIES
INTEGRATED OIL MAJORS INTERNATIONAL UPSTREAM, REGI
ONALLY FOCUSED DOWNSTREAM
Premier Oil
Apache
Adanarko
Kuwait Petroleum
PDVSA
INTEGRATED DOMESTIC OIL COMPANIES
NATIONAL PRODUCTION COMPANIES
Iran NOC
0 0.5 1.0 1.5 2.0
Exxon -Mobil
Statoil
BP
Vertical Balance
Chevron
Petronas
Pemex
THE SUPER MAJORS
Royal Dutch Shell
Conoco Phillips ENI Elf-Fina-Total Repsol YPF
Lukoil
PetroChina
Indian Oil
Phillips
Petrobras
ENI
Nippon
INTERNATIONAL DOWNSTREAM OIL COMPANIES
Repsol
Neste Ashland
Valero
Sunoco
0 10 20 30 40 50 60 70 80
NATIONALLY-FOCUSED DOWNSTREAM COMPANIES
Geographical Scope