the competitive environment. this session will explore: the methodology of an industry analysis ...
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The Competitive Environment
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This session will explore:
The Methodology of an Industry Analysis
Strategic Groups and Market Segments
The Industry Life Cycle and Hypercompetition
Game Theory First-Mover Advantage
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Definition of an IndustryThe concept of Industry Analysis was first developed by economists as a means of analysing the degree of competition that exists within a particular industry or sector.
“…An industry is a group of firms producing the same principal product.”
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“…Convergence is where previously separate industries begin to overlap in terms of
activities, technologies, products and customers.”
Johnson et al, pp. 67
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Supply-Lead Convergence
When organisations begin to behave as if there were
linkages between separate industries or sectors.
Example: Skype, that provides internet telephony through peoples’ computers.
Demand-Lead Convergence
When consumers start to behave
as though industries have converged.
Example: people substituting the PC for the TV as a source of entertainment.
Industry convergence is most likely when both sets of forces are at work!
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Bargaining Power of Buyers; Bargaining Power of
Suppliers; Threat of New Entrants; Threat of Substitutes; Competitive Rivalry.
Michael Porter, 1960
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Power of
Suppliers
CompetitiveRivalry
Power of
Buyers
Threat of
Entry
Threat of
Substitutes
Porter, 1980
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The Bargaining Power of Buyers
Buyer concentration
Number of
alternative sources of supply
Switching costs Potential for
backward integration
The Bargaining Power of Suppliers
Degree of competition
Switching costs Potential for
forward integration
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The Threat of New Entrants
Economies of scale
High capital requirements
Product differentiation
Switching costs
The Threat of Substitutes
Product-for-Product Substitution
Substitution of Need
Generic Substitution
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Competitive Rivalry Number and Size of Competitors Market Growth Rates High Fixed Costs
High Exit Barriers Product Differentiation
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Main Strengths It provides a broad analytical framework
It builds on strong theoretical foundations
It identifies how strategies may be used to influence an industry’s competitive forces
It may be used to evaluate how competitors stand in relation to an industry’s competitive forces.
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Main Weaknesses Difficulties with defining an industry Its main focus is on the threats an
environment poses to organisations It is an inherently static model It views corporate strategy as deliberate
rather than emergent It was primarily developed for the private
sector
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Strategic Groups“…Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies on similar bases.”
Johnson et al, pp. 73
Example : Hypermarkets, supermarkets,
and convenience stores may constitute
three quite different strategic groups within one industry.
Market Segments“… A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market.”
Johnson et al, pp. 77
Example : Performance cars , eg
BMW as a niche car producer.
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Hypercompetition“ …Where organisations aggressively position themselves against each other and create new competitive advantages which make opponents’ advantage obsolete.”
Example : video games and software industries.
A. Henry, pp. 93
Industry Life CycleThe industry life cycle is the supply side analogue of the better-known product life cycle:
“…The industry life cycle suggests that industries go through four stages of development which include introduction, growth, maturity and decline.”
A. Henry, pp. 206
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Annual Development Growth Shakeout Maturity Decline
Sales
Time
Few: Growing adopters Growing Saturation of users Drop-
offUsers/ trial of early trial of selectivity of in
usageBuyers adopters product/service purchases Repeat purchasesReliance
Entry of competitors Many Fight to maintain Few competitors share. Difficult to Exit
of someCompetitive competitors Fight for share Price-cutting gain or take share
competitorsConditions Undifferentiated Shakeout of Efficiency/low cost Product/service weakest emphasised
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DefinitionGame theory has been used by economists to
study competition in oligopolistic markets.
“…Game theory is concerned with the
interrelationships between the competitive moves of a set of competitors.”
Johnson et al, pp. 241
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“…refers to organisations which benefit from the learning and experience they acquire as a result of being first in the marketplace.”
A Henry, pp. 130
“…benefit gained by firms that
are the first to enter new markets, establish brand identity, implement administrative techniques, or adopt new operating technologies…”
Dess et al, pp. 435
“…are advantages that come to firms that make important strategic and technological decisions early in the development of an
industry… In general first-mover advantages can arise from three sources: 1. technological leadership; 2. pre-emption of
strategically valuable assets; and 3. the creation of customer- switching costs.”
Barney & Hesterly, pp.54-55
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A Definition
A Strategic Lock-in “… is where an organisation achieves a propriety position in its industry, it becomes an industry standard.”
Johnson et al, pp. 235
Example: Microsoft Software.
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Please read Case Study 5 and address the following :
Discussion Questions
1. Are British supermarkets more profitable than their European and US counterparts?
2. Use the industry analysis framework to explain the profitability of the main supermarket chains in the UK.
Please Post Your Comments for DiscussionThese may be included in your ‘Assessment Profile’
Address at least one question.Please Note: 250 Word Maximum
(i.e. Total word count per student posting per case study)