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Chapter Four

Chapter Four. External Analysis. 4- 2. Learning Outcomes. 4.1 Describe how to examine the industry that the new business plans to enter. 4.2 Discuss how to create a profile of the target customers for a new business.

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Chapter Four

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  1. Chapter Four External Analysis

  2. 4-2 Learning Outcomes 4.1 Describe how to examine the industry that the new business plans to enter. 4.2 Discuss how to create a profile of the target customers for a new business. 4.3 Explain how to categorize the competitors of the new business using external analysis.

  3. 4-3 Learning Outcomes 4.4 Explain how to construct competitive maps 4.5 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis 4.6 Differentiate between those elements of the business which provide a competitive advantage and those that do not.

  4. 4-4 External Analysis • There are a number of critical steps to examining the nature of the external environment: • Define the industry • Define your customers • Research your industry • Identify competitors • Research competitors

  5. 4-5 External Analysis • Draw a competitive map • Examine and develop insights about additional economic aspects of the industry • Determine your competitive advantage

  6. 4-6 Defining Your Industry • Be as specific as possible • Obtain basic information from the Internet, library, or journals or magazines that cover that industry • Locate your industry’s NAICS code http://www.census.gov/epcd/www/naics.html • Define the industry broadly, but not too broadly

  7. 4-7 Industry • Defined as “those direct competitors selling similar products or services within a specified geographic radius that is consistent with a customer’s willingness to travel to purchase those products and services.”

  8. 4-8 Defining Your Customers • Define the exact nature of the potential customers: • Who are they? • Where are they located? • Where do they currently obtain the product or service?

  9. 4-9 Philo Asian Grille • Its core product will be Asian Dumplings • Industry All restaurants in the Uptown market • Customers Upwardly mobile, affluent 25-44 year olds • Competition Moderately upscale restaurants attracting business professionals and Uptown entertainment seekers

  10. 4-10 Developing the Information for the External Analysis of Competitors • Research the industry yourself • Who are your competitors? As obvious as it sounds, a great place to start is to look in your local telephone book.

  11. 4-11 Defining Competitors • Identify every potential competitor within a “reasonable” distance from your planned location • Examine each of your competitors within the established radius • Fragmented Market-a market in which no one competitor has a substantial share of the market and the means of competition varies widely

  12. 4-12 Developing a Competitive Map The Authors recommend the entrepreneur develop his own a competitive map because: • It is less expensive • Knowledge of what is right and wrong with each competitor allows the entrepreneur to better position the new business

  13. 4-13 Developing a Competitive Map • Insights will be developed regarding positioning, pricing, and facility layout • A competitive map can be updated easily • Any financing needed by the firm will be greatly enhanced with a detailed knowledge of the industry

  14. 4-14 Be a Customer to the Competitors • Potential items to consider: • Parking availability • Access from the road • Nearby attractions for customers • Size of facility • Décor • Pricing • Product breadth • Product depth

  15. 4-15 Be a Customer to the Competitors • Staffing (number and quality) • Capacity • Brochures/advertising material • Customer traffic at different times • Average Sale • Friendliness/helpfulness • Unique features • Suppliers (what company is delivering to their business?

  16. 4-16 Competitive Map-Golf Course Table 4.1 (p. 72)

  17. 4-17 Additional External Analysis • Substitutes • Elasticity of Demand • Ease of Entry or Exit • Benchmarking • Industry Trends

  18. 4-18 Competitive Advantage • A Competitive Advantage is made up of those things that your business does uniquely well, or better than anyone else in your industry • Consider both orthodox and unorthodox parts of the business.

  19. 4-19 Company Evaluation of Resources and Capabilities Table 4.2 (p. 77)

  20. 4-20 Resource-Based View • Resource-based analysis: defined as a theoretical approach and methodology that examines the functioning of a business in terms of whether a product or service simultaneously meets the criteria of being rare, durable, non-substitutable, and valuable.

  21. 4-21 Summary • Examined the reasons and methods the potential entrepreneur to develop personal knowledge of the competitive conditions in the market • The entrepreneur decides for herself what constitutes her “industry” • Examined tools available to personally develop one’s own analysis

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