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Further Topics in Industry and Competitive Analysis Further Topics in Industry and Competitive Analysis
Extending 5-forces analysiso Does industry matter?o Complementso Dynamic competition
Game Theory
Competitor Analysis
Segmentation
Strategic Groups
OUTLINE
Does Industry Matter? Does Industry Matter?
Percentage of variance in firms’ return on assets explained by:
Industry effects
Firm-specific effects
Unexplained variance
Schmalensee (1985)
19.6% 0.6% 80.4%
Rumelt (1991) 4.0% 44.2% 44.8%
McGahan & Porter 1997)
18.7% 31.7% 48.4%
Hawawini et al (2003)
8.1% 35.8% 52.0%
The Value Net The Value Net
COMPANY
CUSTOMERS
SUPPLIERS
COMPLEMENTORSCOMPETITORS
SUPPLIERS
POTENTIALENTRANTS
SUBSTITUTES
BUYERS
INDUSTRYCOMPETITORS
Rivalry amongexisting firms
Bargaining power of suppliers
Bargaining power of buyers
Threat of
new entrantsThreat of
substitutes
COMPLEMENTS
The suppliers of complements create value for the industry
and can exercise bargaining power
Five Forces or Six? —Introducing ComplementsFive Forces or Six? —Introducing Complements
Dynamic CompetitionDynamic Competition
Porter framework assumes:(a) industry structure drives competitive behavior(b) 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 isless useful—Competitive behavior and industry structure jointly
determined by underlying conditions of technology, demand & costs
The Contribution of Game Theory to Competitive Analysis
The Contribution of Game Theory to Competitive Analysis
Main value:1. Framing strategic decisions as interactions between competitors2. Predicting outcomes of competitive situations involving a few,
evenly-matched players
Some key concepts:1. Competition and Cooperation—Game theory can show conditions
where cooperation more advantageous than competition2. Deterrence—changing the payoffs in the game in order to deter
a competitor from certain actions3. Commitment—irrevocable deployments of resources that
give creditability to threats4. Signaling—communication to influence a competitor's decision
Problems of game theory:Useful in explaining past competitive behavior—weak in predicting future competitive behavior.What’s the problem? — Multitude of models, outcomes highly sensitive to small changes in assumptions
PREDICTIONS
• What strategy changes will the competitor initiate?
• How will the competitor respond to our strategic initiatives?
OBJECTIVESWhat are competitor’s current goals?Is performance meeting there goals?How are its goals likely to change?
STRATEGYHow is the firm competing?
ASSUMPTIONSWhat assumptions does the competitorhold about the industry and itself?
RESOURCES & CAPABILITIESWhat are the competitors’ key strengths and weaknesses?
A Framework for Competitor Analysis A Framework for Competitor Analysis
Segmentation Analysis: The Principal Stages Segmentation Analysis: The Principal Stages
1. Identify key variables
and categories.
2. Construct a segmentation matrix
3. Analyze segment attractiveness
4. Identify KSFs in each segment
5. Analyze benefits of broad vs. narrow scope.
Identify segmentation variablesReduce to 2 or 3 variablesIdentify discrete categories for each variable
Potential for economiesof scope across segmentsSimilarity of KSFsProduct differentiation benefitsof segment focus
Opportunities forDifferentiation
Opportunities forDifferentiation
Characteristics of the Buyers
Characteristics of the Buyers
Characteristics of the Product
Characteristics of the Product
Industrial buyersIndustrial buyers
Household buyersHousehold buyers
Distribution channelDistribution channel
Geographicallocation
Geographicallocation
•Size•Technical sophistication•OEM/replacement
•Size•Technical sophistication•OEM/replacement
•Demographics•Lifestyle•Purchase occasion
•Demographics•Lifestyle•Purchase occasion
•Size•Distributor/broker•Exclusive/ nonexclusive•General/special list
•Size•Distributor/broker•Exclusive/ nonexclusive•General/special list
•Physical size•Price level•Product features•Technology design•Inputs used (e.g. raw materials)•Performance characteristics•Pre-sales & post-sales services
•Physical size•Price level•Product features•Technology design•Inputs used (e.g. raw materials)•Performance characteristics•Pre-sales & post-sales services
The Basis for Segmentation: Customer and Product Characteristics
Opportunities forDifferentiation
Opportunities forDifferentiation
Characteristics of the Buyers
Characteristics of the Buyers
Characteristics of the Product
Characteristics of the Product
Industrial buyersIndustrial buyers
Household buyersHousehold buyers
Distribution channelDistribution channel
Geographicallocation
Geographicallocation
*Size*Technical sophistication*OEM/replacement
*Size*Technical sophistication*OEM/replacement
*Demographics*Lifestyle*Purchase occasion
*Demographics*Lifestyle*Purchase occasion
*Size*Distributor/broker*Exclusive/ nonexclusive*General/special list
*Size*Distributor/broker*Exclusive/ nonexclusive*General/special list
*Physical size*Price level*Product features*Technology design*Inputs used (e.g. raw materials)*Performance characteristics*Pre-sales & post-sales services
*Physical size*Price level*Product features*Technology design*Inputs used (e.g. raw materials)*Performance characteristics*Pre-sales & post-sales services
Segmenting the European Metal Can IndustrySegmenting the European Metal Can Industry
Food Fruit Juice Pet food Soft drink Beer Oil
Steel 3-piece
Steel 2-piece
Aluminum 2-piece
General cans
Composite cans
Aerosol cans
Segmenting the World Automobile MarketSegmenting 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
0
5
0
10
15
20
25%
100%Share of industry revenue
Auto loans
Leasing
Warranty
Gasoline
Auto insurance
Aftermarket parts
Auto rentalO
per
atin
g m
arg
in
Auto manufacturing
New car dealers
Used car dealers
Service & repair
Vertical Segmentation & Industry Profit Pools—The US Auto Industry
Vertical Segmentation & Industry Profit Pools—The US Auto Industry
SEGMENT
Low price bicycles sold primarily through department and discount stores, mainly under the retailer’sown brand (e.g. Sears’ “Free Spirit”);
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
Medium-priced bicycles sold primarily under manufacturer’s brandname and distributed mainly throughspecialist bicycles stores;
*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
*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.
Similar to low-price bicycle segment.
High-priced bicycles for enthusiasts.
Children’s bicycles (and tricycles) soldprimarily through toy retailers (discount toy stores, department stores, and specialist toy stores).
Segmentation and Key Success Factors in the U.S. Bicycle Industry Segmentation and Key Success Factors in the U.S. Bicycle Industry
Strategic Group AnalysisStrategic 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.
Broad
PRODUCTRANGE
Narrow
National GEOGRAPHICAL SCOPE Global
NATIONALLY- FOCUSED, SMALL, SPECIALIST
PRODUCERS e.g., Bristol (U.K.), Classic Roadsters
(U.S.), Morgan (U.K.)
NATIONALLY FOCUSED, INTERMEDIATE LINE
PRODUCERS
e.g. Tofas, Proton, Maruti
First Auto Works (China)
REGIONALLY-FOCUSED BROAD-LINE PRODUCERS
e.g. Fiat, PSA, Renault, Kia,
PERFORMANCE CAR PRODUCERS
e.g., Porsche, Ferrari (owned by
Fiat) Maserati, Lotus
LUXURY CAR MANUFACTURERS
e.g., Aston Martin, BMW, Rolls Royce (owned by VW)
GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Subaru, Isuzu, Suzuki,
Saab, Hyundai, Daihatsu
GLOBAL, BROAD-LINEPRODUCERS
e.g., GM, Ford, Toyota, Nissan, Honda, VW,
DaimlerChrysler
Strategic Groups in the World Automobile Industry Strategic Groups in the World Automobile Industry
Geographical Scope
0 10 20 30 40 50 60 70 80
Ver
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NATIONALPRODUCTION COMPANIES
THE SUPER MAJORS
NATIONALLY-FOCUSEDDOWNSTREAM COMPANIES
INTEGRATED DOMESTICOIL COMPANIES
Royal DutchShell
Exxon-Mobil
Statoil
PDVSA
Kuwait Petroleum
Petronas
Petrobras
RepsolNippon
Sunoco
BP
Chevron
Phillips
Pemex
Indian Oil
ENI
INTEGRATED OIL MAJORSINTERNATIONALUPSTREAM,REGIONALLYFOCUSEDDOWNSTREAM
IranNOC
Neste
Ashland
Conoco PhillipsENI
Elf-Fina-TotalRepsol YPF INTERNATIONAL
DOWNSTREAM OIL COMPANIES
INTERNATIONALUPSTREAMCOMPANIES
Adanarko
PremierOil
PetroChinaLukoil
Apache
Valero
Strategic Groups Within the World Petroleum Industry Strategic Groups Within the World Petroleum Industry