Industry Situation Analysis

Fragmented Industry

Prepared by: JC

Fragmented Industry• No sellers has a sizable market share (sometimes the industry is

so new that no large firms have yet emerged.• No firm can dictate directions • No scale of economies• Buyers required small amounts of customized products• The market is do diverse that a lot of firms exists or must exist to

satisfy customer needs.• Low entry barriers• Limited geographical area to be served• Local delivery of products/services• Improving technologies force firms to specialize to keep up in the

area of their expertise• Crowded with young and aspiring contenders

Fragmented Industry

Examples of Fragmented Industries

• Fashion industry• Auto shops/Auto repair shops• Cafes• Salons• Restaurant industry• Furniture• Meat processing• Professional services industry• Publishing

Strategic Options for Fragment Industries

• Constructing and operating formula facilities• Becoming a low-cost operator• Specializing by product type• Specialization by customer type• Focusing on a limited geographic area

Market Players

Industry LeadersRunners Up

Industry Leaders• Stronger-than-average to powerful position• Well known reputation• Proven strategies• Strategic concern: to keep leadership and

dominance

Industry Leaders

Strategic Options of Industry Leaders

Fortify and Defend Strategy

Stay-on-the-offensive Strategy

Follow the Leader Strategy

Stay On The Offensive Strategy• Be the first mover, leading industry change• Best defense is good offense• Always pursue innovation and continuous

improvements• Force rival to scramble to keep up• Launch initiatives to keep rivals off balance • Grow faster than industry taking market

share from rivals

Fortify And Defend Strategy• Objectives:– Make it harder for new firms to join and

challengers to gain grounds– Hold on to present market share– Strengthen current market position

Fortify And Defend Strategy Options• Increase marketing and R&D• Improve and provide the highest level of customer service• Introduce more brand/options to match attributes of rivals• Boost buyer loyalty• Keep prices reasonable and maintain high quality of

products• Build new capacity ahead of market demand• Invest enough to remain cost competitive• Patent Technologies• Sign exclusive contracts with best suppliers, distributors, and

endorsers.

Follow-The-Leader Strategy• Objectives– Use competitive muscle to encourage runner up

firms to be content followers– Signal smaller rivals that moves to cut into

leader’s business will be hard fought

Follow-The-Leader Strategy Options• Be quick to meet competitive price cuts• Counter with large-scale promotional campaign if

challengers boost advertising• Offer better deals to major customers of maverick firms• Dissuade distributors from carrying rivals’ products• Attempt to attack key executives of rivals• Use “hard ball” measures to signal aggressive small

firms who should lead• Use arm twisting tactics to pressure present customers

not to use rival’s products

Runner UP Firms• Industry leaders were once runners up• They are profitable but has less market share• Lagging in terms of competitive positions

Types of Runner Up Firms–Market challengers• Use offensive strategies to gain market share• Cherry mobile, O+, myPhone

– Focusers• Concentrate on serving a limited portion of market• Niche strategy, profits are adequate• Vertu, Bugati Veyron, concept car producers

– Perennial runners-up• Lack competitive strength to do more than continue in

trailing position. Still profitable• IBC 13, Net 25

Strategic Options for Runners Up• Case 1 – Where large size yields significantly lowers unit costs

giving large-share firms a cost advantage, options are:• Build market share• Become a lower cost producer• Pursue a differentiation strategy• Withdraw from the business

• Rule: Runner up firms should avoid attacking a leader head on with an imitative strategy regardless of resources and staying power an underdog may have. Ex.: TV5

Strategic Options for Runners Up

• Case 2– Where large size does not yield a cost advantage,

runner up firms have 6 options:1. Vacant niche strategy (Sony Walkman)2. Specialist strategy (Huawei communications tech)3. “Ours is better than theirs” (Apple, EC Gas)4. Content follower strategy (Twitter ads)5. Growth via acquisition strategy (Yahoo, when it

suddenly went down)6. Distinctive image strategy (GMA 7, EC Gas)

Strategic Options for Runners Up

• Case 3 Obstacles– Where big size is a competitive asset, firms with

low market share face obstacles• Less Access to economies of scale• Difficulty in gaining customer recognition• Inability to afford mass media advertising• Difficulty in funding capital requirements

Strategic Options for Runners Up

• Case 3 Overcoming Obstacles Strategies– Focus on a few segments where strengths can yield

competitive edge– Develop technical expertise highly values by

customers– Aggressively pursue development of new products

for customers in target segments– Use innovative entrepreneurial approaches to out-

manage slow to change leaders

Weak Business Strategy• Launch a strategic offensive• Play aggressive defense• Pursue immediate abandonment• Adopt harvest strategy

Harvest Strategy• Using the profits of a mature brand or line of

business or a soon to be gone firm to finance a more promising LOB, firm, or brand.

• Example is the Symbian OS to allow growth of Windows 8 and android run Nokia phones.

• Short term goal: to gain cash flow• Long term goal: to exit the market

13 Commandments of Successful Business Strategies

1. Always put top priority on crafting and executing strategic moves that enhances a firms competitive position for the long-term and that serve to establish it as an industry leader.

2. Understand that a clear, consistent competitive strategy, when well-crafted and well-executed, builds reputation and recognizable industry position whereas a strategy aimed solely at capturing momentary market opportunities yields fleeting benefits.

13 Commandments of Successful Business Strategies

3. Endeavour not to get “stuck back in the pack” with no coherent long term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.

4. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above average profitability.

13 Commandments of Successful Business Strategies

5. Play aggressive offense to build competitive advantage and aggressive defense to protect it.

6. Avoid strategies capable of succeeding only in the best circumstances.

7. Avoid rigidly prescribed or inflexible strategies changing market conditions may render it quickly obsolete

13 Commandments of Successful Business Strategies

8. Don’t underestimate the commitment and the reactions of rival firms.

9. Be wary of attacking strong, resourceful rivals without first having solid competitive advantage and ample financial strength.

10. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.

13 Commandments of Successful Business Strategies

11. Be judicious in cutting prices without an established cost advantage.

12. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of marketing “arms race” and or price wars.

13. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality of service or advertising of other product attributes.

Thank you!

• Sources:– http://home.ubalt.edu/ntsbmilb/chapter6/sld070.

htm– Investopedia.com– Chapter 14Fundamentals of Strategic

Management: Chapter 14 Industry Situation Analysis, N.A. Orcullo Jr., RBS Publishing house, 2009