mba 671 dr. s. borna. induce your competitors not to invest in those products, markets and services...

MBA 671MBA 671

Dr. S. BornaDr. S. Borna

Induce your competitors not to invest in Induce your competitors not to invest in those products, markets and services those products, markets and services where you expect to invest the most … where you expect to invest the most … that is the fundamental rule of strategy.that is the fundamental rule of strategy. Bruce Henderson, Founder of BCGBruce Henderson, Founder of BCG

There is nothing more exhilarating than There is nothing more exhilarating than to be shot at without result.to be shot at without result. Winston ChurchillWinston Churchill

Industry and competitorIndustry and competitoranalysis analysis processprocess

1. Identify relevant Industry1. Identify relevant Industry and specify strategic and specify strategic groupsgroups

2. Industry structure 2. Industry structure analysisanalysis

3. Examine bases of3. Examine bases of CompetitionCompetition

4. Individual competitor4. Individual competitor analysisanalysis

What is the benefit (s) of industryWhat is the benefit (s) of industry and competitor analysis? and competitor analysis?

Industry attractivenessIndustry attractivenessor unattractiveness and aor unattractiveness and afirm’s competitive positionfirm’s competitive positionwithin an industry have within an industry have profound impact on strategyprofound impact on strategyformulation.formulation.

What do we mean byWhat do we mean bythe term “industry”?the term “industry”?

““Soft drink” industrySoft drink” industry

Firms that produceFirms that producesimilar productssimilar products

(product substitution)(product substitution)

A Definition of IndustryA Definition of Industry

Four Levels of Competition Based on Four Levels of Competition Based on the Degree of Substitutabilitythe Degree of Substitutability

1. Generic competition1. Generic competition2. Form competition2. Form competition3. Industry competition3. Industry competition4. Brand competition4. Brand competition

What desire do IWhat desire do Iwant to satisfy?want to satisfy?

Desire CompetitionDesire Competition

SocializingSocializingExercisingExercisingEatingEating .. ..

What do I wantWhat do I wantto eat?to eat?

GenericGenericcompetitioncompetition

Potato chipsPotato chipsCandyCandysoft drinksoft drink ..

What type ofWhat type ofcandy?candy?

Form competitionForm competition

Chocolate barsChocolate barsLicoriceLicoriceSugar dropsSugar drops .. .. ..

Which brandWhich branddo I want?do I want?

Brand Brand competitioncompetition

HersheyHersheyNestleNestleMarsMars ..

Identification of StrategicIdentification of StrategicGroupsGroups

A strategic group consistsA strategic group consistsof firms pursuing similarof firms pursuing similarstrategies, i.e., employingstrategies, i.e., employinga similar mix of strategya similar mix of strategyelements.elements.

??

??

How to classify firms?How to classify firms?

qualityquality

Markets servedMarkets served

HH

LLDD II

HighHigh

LowHigh

LowLow

Qu

alit

yQ

ual

ity

Vertical IntegrationVertical Integration

Strategic Groups in the Major Strategic Groups in the Major Appliance IndustryAppliance Industry

Strategic Groups in the Major Strategic Groups in the Major Appliance IndustryAppliance Industry

Group A•Narrow line•Lower mfg. cost•Very high service•High price

Group D•Broad line•Medium mfg. cost•Low service•Low price

Group C•Moderate line•Medium mfg. cost•Medium service•Medium price

Group B•Full line•Low mfg. cost•Good service•Medium price

Bases for classification:Bases for classification:

1. Markets served: BMW1. Markets served: BMW Mercedes-Benz etc.Mercedes-Benz etc.2. Products: full line, limited2. Products: full line, limited line etc. Coke and Pepsi, 7 upline etc. Coke and Pepsi, 7 up3. Distribution channels3. Distribution channels Goodrich vs. DunlopGoodrich vs. Dunlop (own retailers vs indp’t R.)(own retailers vs indp’t R.)

(Strategic groups)(Strategic groups)

Identification of PotentialIdentification of Potential CompetitorsCompetitors

1. Firms expanding their 1. Firms expanding their geographical marketsgeographical markets examples: Wal-mart, Meijerexamples: Wal-mart, Meijer

Firms expanding theirFirms expanding theirProduct lineProduct line Example, IBM entering the Example, IBM entering the PC marketPC market

Firms integrating ForwardFirms integrating ForwardAnd backwardAnd backward

SSPPWWRR

A supermarket manufacturingA supermarket manufacturingits own private labelsits own private labels

Firms seeking merger orFirms seeking merger orbuyoutbuyoutHicks and Hass AcquiringHicks and Hass AcquiringDr. Pepper, Seven-up, andDr. Pepper, Seven-up, andA&WA&W

INDUSTRYSTRUCTURE INDUSTRYSTRUCTURE ANALYSISANALYSIS

Michael Porter’s ModelMichael Porter’s Model

Five Forces Determining Segment Five Forces Determining Segment Structural AttractivenessStructural Attractiveness

Five Forces Determining Segment Five Forces Determining Segment Structural AttractivenessStructural Attractiveness

Potential Entrants(Threat ofMobility)

Potential Entrants(Threat ofMobility)

Buyers(Buyer power)

Substitutes(Threats ofsubstitutes)

Suppliers(Supplier power)

Suppliers(Supplier power)

IndustryCompetitors

(Segment rivalry)

Potential CompetitorsPotential CompetitorsAnd Industry attractivenessAnd Industry attractiveness

Experience effectExperience effect (economies of (economies of scale and experience effect)scale and experience effect)

Capital requirementsCapital requirementsProduct differentiationProduct differentiationDistribution channelsDistribution channels((Retailer reluctance, Mature products etc.)Retailer reluctance, Mature products etc.)

Switching costsSwitching costs ((ex. new softwareex. new softwarefor new computers)for new computers)

Present CompetitorsPresent Competitors

Investment intensityInvestment intensityProduct differentiationProduct differentiationSwitching CostsSwitching CostsIndustry growthIndustry growthIndustry structureIndustry structureExit barriersExit barriers

Investment IntensityInvestment Intensity

By investment intensity, weBy investment intensity, wemean the amount of fixedmean the amount of fixedand working capital requiredand working capital requiredto produce a dollar sales.to produce a dollar sales.

A Note on Industry StructureA Note on Industry Structure

MonopolyMonopolyOligopolyOligopolyMonopolistic competitionMonopolistic competitionPure competitionPure competition(in pure competition there(in pure competition thereis no competition!)is no competition!)

Less Less differentiated differentiated an industryan industryless attractive is that industry!less attractive is that industry!

Switching costsSwitching costs, or the costs, or the costsof changing suppliers-of changing suppliers-inhibit competition.inhibit competition.

Threat of SubstituteThreat of SubstituteProductsProductsActual or potential substituteActual or potential substituteproductproduct

GASGASMARGARINEMARGARINEPLASTICPLASTIC

ELECTRICITYELECTRICITYBUTTERBUTTERGLASSGLASS

Bargaining StrengthBargaining Strengthof Suppliersof SuppliersSUPPLIER CONCENTRATIONSUPPLIER CONCENTRATIONNO. OFNO. OF suppliers suppliersSupplier product is a largeSupplier product is a largepart of buyer’s value addedpart of buyer’s value addedSWITCHING COSTSSWITCHING COSTS

SUBSTITUTE RAW SUBSTITUTE RAW MATERIALS (soft drink:sugarMATERIALS (soft drink:sugarcans etc)cans etc)THREAT OF FORWARD THREAT OF FORWARD INTEGRATIONINTEGRATION

Suppliers Cont.Suppliers Cont.

Bargaining Power of BuyersBargaining Power of Buyers

Buyers ConcentrationBuyers ConcentrationThreat of backward integrationThreat of backward integrationProduct importanceProduct importanceBuyer profitabilityBuyer profitabilitySubstitutesSubstitutesSwitching costsSwitching costs(e.g. food, beer, soft-drink & metal cans)(e.g. food, beer, soft-drink & metal cans)

Analyzing CompetitorsAnalyzing CompetitorsAnalyzing CompetitorsAnalyzing Competitors

CompetitorCompetitorActionsActions

ObjectivesObjectives

Strengths &Strengths &WeaknessesWeaknesses

ReactionReactionPatternsPatterns

StrategiesStrategies

Individual Competitor AnalysisIndividual Competitor Analysis

Competitor CharacteristicsCompetitor Characteristics

Competitor ObjectivesCompetitor Objectives

Competitor StrategyCompetitor Strategy

Competitor Success TodayCompetitor Success Today

Competitor Strength and weaknessCompetitor Strength and weakness

Competitor Future BehaviorCompetitor Future Behavior

Competitor CharacteristicsCompetitor Characteristics

Information related to:Information related to:•Size of SalesSize of Sales•ProfitabilityProfitability•Market ShareMarket Share•GrowthGrowth•Relation of SBU to the parentRelation of SBU to the parent Company, etc.Company, etc.

Competitor ObjectivesCompetitor Objectives

•Market Growth ObjectivesMarket Growth Objectives•Price ObjectivesPrice Objectives•Product Technology ObjectivesProduct Technology Objectives•Human Resource ObjectivesHuman Resource Objectives•etc.etc.

Competitor’s StrategyCompetitor’s Strategy

Review of past and presentReview of past and presentstrategiesstrategies

Company’s current marketingCompany’s current marketingmix strategymix strategy(BIC as an example: strategy of(BIC as an example: strategy oflow cost, mass produced andlow cost, mass produced anddisposable products)disposable products)

Competitor’s Strengths andCompetitor’s Strengths andWeaknessesWeaknesses

Marketing:Marketing: Product QualityProduct Quality Brand NamesBrand Names DistributionDistribution Promotion skillsPromotion skills SalesforceSalesforce

cont.cont.

Innovation:Innovation: R&DR&D TechnologiesTechnologies New Product CapabilitiesNew Product Capabilities

Management:Management: Quality of top managementQuality of top management Loyalty-turnoverLoyalty-turnover Quality of Middle-Quality of Middle- managementmanagement

How to Develop a ResponseHow to Develop a ResponsePolicy?Policy?

Estimating the Competitors’Estimating the Competitors’Reaction PatternsReaction Patterns

The laid-back competitorsThe laid-back competitorsThe selective competitorsThe selective competitorsThe tiger competitorsThe tiger competitorsThe Stochastic competitorsThe Stochastic competitors

Designing the CompetitiveDesigning the CompetitiveIntelligence SystemIntelligence System

1. Setting up the system1. Setting up the system What type of information?What type of information? What is the best source ofWhat is the best source of information?information? Who will manage the system?Who will manage the system?

2.2. Collect InformationCollect Information

Sales forceSales force Channel membersChannel members Trade associationTrade association etc.etc.

Other sources of InformationOther sources of Information

1. Company Financial:1. Company Financial: 10-k, annual reports10-k, annual reports Moody’s, State FilingMoody’s, State Filing Published articlesPublished articles

2. Company Background2. Company BackgroundStandard & Poor’sStandard & Poor’sF & S IndexesF & S IndexesNewspaper IndexNewspaper Index

3.3. Management PersonnelManagement Personnel Who’s whoWho’s who Local NewspapersLocal Newspapers College alumni associationCollege alumni association

4.4. Foreign InformationForeign Information ConsulatesConsulates EmbassiesEmbassies International Trade International Trade CommissionCommission

3. 3. Evaluate and analyze theEvaluate and analyze the informationinformation

check validity and reliabilitycheck validity and reliabilityof the informationof the information

4. Dissemination and 4. Dissemination and ResponseResponse

ReviewReviewReviewReview Identifying CompetitorsIdentifying Competitors Evaluating CompetitorsEvaluating Competitors Competitive Intelligence SystemsCompetitive Intelligence Systems Competitive Strategies (Competitive Strategies (not not

discussed)discussed) Customer vs. Competitor Customer vs. Competitor

OrientationOrientation