Industry Analysis

1. Industry Analysis Agenda • Industry Analysis – RA – 6 (go through the worksheets – they really will help) • Feedback to other groups – part of your participation grade • Events for reflection journal Ongoing: • Strategic Positioning, RA-9 • Preliminary Executive Summary Pitch *** • Marketing & Sales, RA-10

2. Strategy Question • Seerse, Inc. is a diversified company that has six lines of business. The company’s management states that all these businesses are essential to its competitive future. This table describes the different businesses’ contribution to revenue and profits: Explain the variability in the sales/profit across Seerse’s businesses. In what business is Seerse more successful? Explain your answer.

3. Who was the best athlete? AleksandrKarelin Heather McKay

4. Levels of the environment macro-environment global macroeconomics industry demographics policy/law technology competitors customers suppliers firm physical environment sociocultural

5. Industries, markets & segments • Market - a group of customers interested in a certain product. • Segment - a subcategory of a market defined with reference to certain product and/or customer characteristics. • Many markets can be broken into segments. • Strategic group is a group of firms within an industry following similar strategies. • Often this means they pursue similar market segments.

6. Why do we care about Industry? • Industry Structure exerts industry effect on all firms in the industry • Allows you to check your assumptions. • If you are you out of line, more explanation needed Firm effects Industry effects Firm Performance 4% 2%

7. Ways of Knowing • Industry overview – IBISWorld • Maybe market Research.com – smaller coverage • Industry leaders – OneSource • Interviews with industry professionals • Come prepared • Lists of specific questions • Limited amount of time • End by asking “What is something that I need to know that I have not asked yet?”

8. Industry Classification • The North American Industry Classification System (NAICS) • standard used by Federal statistical agencies • classifies business establishments • Used for U.S. business economy statistics

9. What is the boundary for this Industry? • Companies in this industry manufacture cars and automobile chassis. They are referred to as automakers and typically produce automobiles (cars, including electric cars) in assembly plants. The manufacturing of light trucks such as vans, pick ups and SUVs, heavy trucks and motorcycles are not included in this industry. • Why? Recall NAICS 33611a (Car & Automobile Mfg)

10. NAICS 33611a [Car & Automobile Mfg] • Products, top players, cost structure and market segments indicate elements of the value chain.

11. Value Chain for our Industry • Some elements of the value chain may need more data and information. • Understand the dynamics of these interactions Toyota Dealers Labor Ford Wholesalers Tier 1/OEMs Mid-size Small Luxury Sports GM Exports Govt Honda Resources Leasing

12. Where to start The Big Picture Accuracy in forecasting Economic cycles Cyclical Countercyclical Seasonality Summer buying Christmas • Size (does it matter) • Growth Rate (p. 75) • Put it in perspective, compared to GDP, other industries • Stage of maturity • Table on p 77 – think through implications for other parts of the plan

13. Potential threats / opportunities • Technological change • Regulation / Certification • Supply Channels • Distribution Channels

14. Your Own Analysis Technological change Maturity Supply Channels Distribution Channels Technological change

15. How to analyze the 5 Forces? • Assume a firm is magically placed in the industry (like an experiment). • You’re already there. What’s it like? • Assess strength of each of the five competitive forces (Strong? Moderate? Weak? ) • Assess the factors causing each force to be strong or weak? • Rate combined effect: brutal, fierce, strong, normal/moderate, or weak Who is this?

16. What increases Buyer bargaining power • They are large and purchase a sizable percentage of industry’s product (Monopsony) • They buy in large quantities • They can integrate backward (Buy you out) • Industry’s product is standardized • Their costs in switching to substitutes or other brands are low • They can purchase from several sellers • Product purchased does not save buyer money Overall Buyer Bargaining Power is moderate to high

17. What increases supplier bargaining power • Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality • Costly for buyers to switch suppliers • Have good reputations and growing demand • Can supply a component cheaper than industry members can make it themselves • Few substitutes for supply • Buying firms are not important customers Labor Tier 1 OEMs Government Overall Supplier Bargaining Power is high

18. What increases forces of rivalry? • Frequent launches of new offensives to gain sales and market share • Aggressive marketing and product strategy • Lots of firms that are relatively equal in size and capability • Commoditization • Low switching costs for buyers • Scarce supply side resources Overall Rivalry is moderate to high

19. Entry Barriers: Threat of Entry • Supply side scale economies • Demand side scale economies • Existence of strong learning/experience curve effects • Strong brand preferences and customer loyalty • Difficulties in gaining access to distribution channels • Regulatory policies, tariffs, trade restrictions • Expected retaliation Overall Entry Barriers are high

20. What are some substitutes? Readily available Attractively priced Believed to have comparable or better performance features Customer switching costs are low Overall currently low to moderate threat of substitutes

21. Low to Mod High High Mod to High Low Overall this Industry is low to moderately attractive

22. Ways of influencing industry structure identify new niche market SUPPLIERS integrate vertically INDUSTRY COMPETITORS POTENTIAL ENTRANTS SUBSTITUTES Rivalry among existing firms create switching costs develop economies of scale BUYERS

23. Now you try it Technological change Maturity Supply Channels Distribution Channels Technological change

24. Wrap-up • Key takeaways • Industry affects firm profitability (it’s comparative) • Know the industry • investors can sense weakness • Avoid For Next Class: Ongoing: • Strategic Positioning, RA-9 • Preliminary Executive Summary Pitch • Marketing & Sales, RA-10