1. 1. Creating and Presenting Strategic Plans Competitive Analysis and Strategies (B.2.4.)
2. 2. Competition at 3 Levels B.2.3. Competitive Analysis B.2.3.1.Industry Forces B.2.3.2.Firm Position B.2.3.3. Actual Competitors
3. 3. Profit Levels for Pharmaceutical Manufacturers in 2014 Fortune 500 List Company Codes: JNJ: Johnson and Johnson, PFE: Pfizer, MRK: Merch, LLY: Eli Lilly and Company, ABBV: AbbVie, AMBN: Amgen, BMY: Bristonl-Myers Squibb Company, GILD: Gilead Sciences, BIIB: Biogen Idec, MYL: Mylan, CELG: Celgene, AGN: Allergen Source: http://www.drugchannels.net/2014/06/profits-in-2014-fortune-500.html 0 30 60 90 120 JNJ PFE MRK LLY ABBV AMGN BMY GILD BIIB MYL CELG AGN 9 2.7 5 0.8 18.8 6.8 11.4 26.3 22.5 5.9 31.2 11.6 34.6 26.3 26.9 7.3 5.0 34.8 68.5 104.5 91.0 58.1 115.3 21.3 Annualized Return To Investors (2003 - 2013) (%) Total Return to Investors 2013 (%) (%)
4. 4. Coincidence? Luck? Supply and demand? No Underlying structure Not just competitors, other forces Degree of Competition in Any Industry
5. 5. Porters 5 Competitive Forces Model Power of BuyersPower of Suppliers Threat of New Entrants Threat of Substitutes Degree of Rivalry
6. 6. Large purchases, especially when fixed costs high Unimportant to buyer Standard products Low switching costs Buyer earns low profits Threaten backward integration No threat of forward integration Buyer has full information Buyers Power is Strong When
7. 7. Powerful Buyers: in UK UK Degree of Buyer Concentration Supermarkets (1) Tesco Asda Sainsbury Morrisons Total % Mkt Share 29 17 16 11 73 Banks (2) Lloyds RBS HSBC Barclays % Mkt Share 30 16 14 13 73 (1) Kam City, 21 October 2014 (2) OFT Supermarkets and Banks
8. 8. Suppliers highly concentrated Government is a supplier No substitutes Buyer has high switching costs Threatens forward integration Not an important customer of supplier Supplier product important Suppliers products differentiated Supplier Power (Mirror of Buyer) is Strong
9. 9. Powerful Suppliers: in UK UK Energy Market Share (%) Electricity Gas Total British Gas 12 24 18 E.ON 19 17 18 ScottishPower 10 10 10 EDF Energy 12 10 10 RWE nPower 12 12 12 Scottish &Southern Energy 25 13 13 Totals 85 66 81 Source: http://www.academia.edu/555316/UK_Energy_Market_Overview Big Six Energy Suppliers in the UK
10. 10. Scale: Toyota Differentiation: Apple Capital requirements: Rolls Royce Switching costs: Microsoft Access to distribution channels: Coke Non-scale advantages Proprietary technology: Dolby Favourable location: Norwegian electricity Government help: Chinese industry Experience: Oxford publishing Reactions from incumbents: Predatory pricing 6 Major Barriers to Entry
11. 11. Other products/services which perform the same function Place a ceiling on the price Product/Service Substitutes Movie Television, DVD, stage play Telephone call Letter, fax, email CD bought from retailer Download, Stream Ferry journey Aeroplane, tunnel plus car, rail tunnel Product catalogue CD, download from web Substitutes
12. 12. Slow industry growth: House Building Intensity of Rivalry Numerous equally balanced competitors: Web Page Designers High fixed costs: Rolls Royce Lack of differentiation: Office Stationery Large increments in capacity: Oil Refining Diverse competitors: Recorded Music High strategic stakes: Military High exit barriers: Shipyards
13. 13. Actual market rivals Competition: All Five Forces Potential entrants Buyers Suppliers Substitutes
14. 14. How? Appraise each force Then Compete using a generic strategy Find a position in the industry where you can best defend yourself Goal of Competitive Strategy
15. 15. High volume low cost (HVLC) Differentiation Focus The Generic Strategies
16. 16. Loss for small player High Low Volume Unit price & unit cost Low High Profits for largest player Generic 1: High Volume Low Cost (HVLC)
17. 17. High Low Volume Unit price & unit cost Low High Profits for largest player Generic 2: Differentiation
18. 18. Lever Effects Difficulty Price Lower profits, Disloyal buyers, No skill Retaliation Easy Promotion Expand overall market Difficult Distribution Maintain margins Difficult Innovation Higher and more sustained profits Difficult Service Price and cost advantage Difficult Quality Price and cost advantage Difficult Sources of Differentiation: The Marketing Levers Or why low price is a terrible weapon
19. 19. Differentiation Marketing/Promotion Innovation
20. 20. Major Global Advertising Spend : A Paradox? Samsung: Worlds biggest advertising spend 2014 Yet its Phone profits declined 78% in Q4 Apple: Lowest % advertising spend Yet its profits soar Microsoft spend 8.0% of sales Apple spend 0.7% of sales 8.0% 0.7% x 11 times Why?
21. 21. The Reason One is selling a product The other is marketing a brand Product Brand Product Price Advertising Product + Associated Services Promotion Design Warranty Quality Customer service Innovation Distribution Uniqueness
22. 22. The Worlds Top Brands 2014
23. 23. The Worlds Most Innovative Companies
24. 24. Cultures which Promote Innovation
25. 25. Source: Forbes 0 20 40 60 80 Revenue Growth EBITDA Grth Mkt Cap Growth Top 10 Innovators Top 10 Spenders Top 10 innovators outperform their peers in 3 key financial metrics (5 years CAGR) Real Innovation Pays
26. 26. Lever Effects Difficulty Price Lower profits, Disloyal buyers, No skill Retaliation Easy Promotion Expand overall market Difficult Distribution Maintain margins Difficult Innovation Higher and more sustained profits Difficult Service Price and cost advantage Difficult Quality Price and cost advantage Difficult The Marketing Levers Reminder
27. 27. Buyer power reduced alternatives denied Differentiation Price premiums + loyal buyers give margins to deal with supplier power Brand loyalty protects
28. 28. Differentiated focus HVLC focus Focus
29. 29. You really must pick one Structures etc. Resources Styles, Each generic requires different Which Generic?
30. 30. ROCE RMS HighLow High Low HVLCDifferentiated Stuck in the middle The U-Shaped Curve
31. 31. More important than ever Generic strategies vital the basis of much successful e-business The big changes: Switching costs reduced Fantastic opportunities to resolutely pursue a generic Competitive Forces in the Internet Ear
32. 32. Force Threats Our strategy Power of Buyers Power of Suppliers Threat of New Entrants Threat of substitutes Degree of rivalry Our generic strategy: Practical Application
33. 33. Creating and Presenting Strategic Plans Competitive Analysis and Strategies (B.2.4.) Firm Competitive Position
34. 34. Characteristic Comment Sales () The larger the better Market share (%) The larger the better RMS The larger the better RPQ The larger the better Price rel to comp (%) The larger the better New prod/sales (%) *The larger the better R&D/Sales (%) The larger the better Degree of Competition The more benign the better Determinants of Firm Competitive Position * Assuming firm is already No. 1 in RPQ Which is best?
35. 35. Firm Competitive Position: Discussion Political Economic Social Technological Environmental Other influences Legal Barons Insurgent s Serfs
36. 36. Product Sales ($) Mkt Sh. (%) RMS RPQ RP NP/Sales R&D/Sal es Competition Comments Current Competitive Position Template
37. 37. Creating and Presenting Strategic Plans Competitive Analysis and Strategies (B.2.4.) Actual Competitors
38. 38. Know the Gossip
39. 39. Predictions Actual Competitors: Wide discussion History: Leader/Follower Growth Focus on Leaders - past behaviours Focus on Insurgents and Barons HVLC versus Diff. versus Focus Organic versus Acquisition Existing New diverse entrants or threatsNew
40. 40. Competitor name Main person Growth rate Leader/Follo wer Strategy: HVLC/Diff/F ocus Strategy: Org/Acq Our strategy 1 2 3 4 5 6 Comments Actual Competitor Analysis
41. 41. The End