Industry Competitive Industry Competitive Structure AnalysisStructure Analysis

Serge OréalSerge Oréal

5 Forces Model5 Forces Model

RivalryAnalysis

BuyersSuppliersFinal

Consumers

New Entrants

Producers ofSubstitutes

Rivalry AnalysisRivalry Analysis

Define industry limitsDefine industry limits Analyze concentration rate of the industryAnalyze concentration rate of the industry Identify competitive structure of the industryIdentify competitive structure of the industry Evaluate strategies and competitive weaponsEvaluate strategies and competitive weapons Analyze evolution of industry structureAnalyze evolution of industry structure

Increasing concentrationIncreasing concentration Increasing competitionIncreasing competition

Existence of barriers to Entry and to ExitExistence of barriers to Entry and to Exit Strategic map: identify Strategic GroupsStrategic map: identify Strategic Groups

Industry LimitsIndustry Limits

ExogenousExogenousGeographic coverageGeographic coverageDegree of diversityDegree of diversityDegree of vertical integrationDegree of vertical integration

EndogenousEndogenousProductProductMarkets/needs being servedMarkets/needs being servedTechnology/know-howTechnology/know-how

Industry ConcentrationIndustry Concentration

Number Number ofof

FirmsFirms

TopTop

44

TopTop

88

TopTop

2020

CigarettesCigarettes 77 70%70% 100%100%

DetergentsDetergents 599599 70%70% 78%78% 86%86%

ArtificialArtificial

Fur coatsFur coats

3 0003 000 8%8% 10%10% 11%11%

Industry StructureIndustry Structure

MonopolyMonopoly

Monopolistic competitionMonopolistic competition

OligopolyOligopoly

Pure/perfect competitionPure/perfect competition

Industry Structure & Competitive Industry Structure & Competitive WeaponsWeapons

Perfect Competition

CostCompetitiveness

Price

Production

Logistics

Purchasing, Supply mgt

Distribution

Process innovation

General/admin. Cost mgt

Industry Structure & Competitive Industry Structure & Competitive WeaponsWeapons

Oligopoly

Quality, Service, Attributes, Image, Brand

name, etc…

Market analysis

Research & development

Communication

CRM

Barriers to EntryBarriers to Entry Start-up capitalStart-up capital Technology and know howTechnology and know how Government policyGovernment policy Regulations and norms, legal barriersRegulations and norms, legal barriers Access to suppliers and to distribution channelsAccess to suppliers and to distribution channels Switching costsSwitching costs Economies of scaleEconomies of scale Image and reputationImage and reputation Product differentiationProduct differentiation Cost disadvantages independent of scale: location, government Cost disadvantages independent of scale: location, government

subsidies, experience curve effectssubsidies, experience curve effects Expected retaliation by existing competitorsExpected retaliation by existing competitors Market saturationMarket saturation Concentration of the industryConcentration of the industry

Barriers to ExitBarriers to Exit

Legal barriers: Legal barriers: contracts, serviving, public service obligationcontracts, serviving, public service obligation

Specialized assetsSpecialized assetsFixed costs of exitFixed costs of exitSunk costsSunk costsPolitical and social pressuresPolitical and social pressuresEmotional and cultural barriersEmotional and cultural barriersRelationships with other SBUsRelationships with other SBUs Image and reputationImage and reputation

Strategic Group MappingStrategic Group Mapping

Strategic Group:Strategic Group:Group of companies in the same industryGroup of companies in the same industry

Having very similar economic characteristics,Having very similar economic characteristics,Following very similar strategiesFollowing very similar strategies

Industry Mapping:Industry Mapping:Strategic Group Analysis Strategic Group Analysis

a b

c de

g h

ij

k lm

f

no

How to use it?How to use it?

Analysis:Analysis: Identify direct competitorsIdentify direct competitorsBenchmarkingBenchmarkingFollow their strategic evolutionFollow their strategic evolution

Decision making:Decision making:Be/stay the leader in your groupBe/stay the leader in your groupJoin an other groupJoin an other groupCreate your own group: InnovateCreate your own group: Innovate

Strategic Group MappingStrategic Group Mapping Firms in Firms in same strategic group same strategic group have two have two

or more competitive characteristics in or more competitive characteristics in commoncommon Sell in same price/quality rangeSell in same price/quality range Cover same geographic areasCover same geographic areas Be vertically integrated to same degreeBe vertically integrated to same degree Have comparable product line breadthHave comparable product line breadth Emphasize same types of distribution Emphasize same types of distribution

channelschannels Offer buyers similar servicesOffer buyers similar services Use identical technological approachesUse identical technological approaches

Procedure for Constructing aProcedure for Constructing aStrategic Group MapStrategic Group Map

STEP 1STEP 1: : Identify competitive characteristics that Identify competitive characteristics that differentiate firms in an industry from one differentiate firms in an industry from one anotheranother

STEP 2STEP 2: : Plot firms on a two-variable map using pairs Plot firms on a two-variable map using pairs of these differentiating characteristicsof these differentiating characteristics

STEP 3STEP 3: : Assign firms that fall in about the same Assign firms that fall in about the same strategy space to same strategic groupstrategy space to same strategic group

STEP 4STEP 4: : Draw circles around each group, making Draw circles around each group, making circles proportional to size of group’s circles proportional to size of group’s respective share of total industry salesrespective share of total industry sales

Example: Strategic Group Map of Example: Strategic Group Map of the Video Game Industrythe Video Game Industry

Typ

es o

f V

ideo

Gam

e S

up

pli

ers/

Dis

trib

uti

on

Ch

ann

els

Overall Cost to Players of Video Games

Low(Coin-operated

equipment)

Medium (Console players cost

$100-$300)

High (Use PC)

Arcades

Home PCs

Video game consoles

Online/Internet

Sony, Sega, Nintendo, several

others

Arcade operators Publishers

of games on CD-ROMs

MSN Gaming Zone, Pogo.com,

America Online, HEAT, Engage, Oceanline, TEN

Example: Strategic Group MapExample: Strategic Group Mapof Selected Retail Chainsof Selected Retail Chains

Example: Strategic Group MapExample: Strategic Group Mapof Selected Retail Chainsof Selected Retail Chains

Car IndustryCar Industry

Number of Models

Few Many

Market

Coverage

National

World

Zone

Car IndustryCar Industry

Number of Models

Few Many

Market

Coverage

National

World

ZoneVAG Chrysler

Fiat Nissan

Renault PSA

GM

Ford

Toyota

HondaBMW

MercedesFerrari

Porsche

Rolls

Jaguar

Huyndai

Daewoo

Mitsubishi

Isuzu

Rover

Lada

Dacia