Industry Analysis

1. Industry Analysis Key Issue: Analyzing a Market’s Trends and Attractiveness Key Assumption: Level of Competition is Set

2. Beer Ice cream Tea Regular colas Diet lemon limes Diet-Rite cola Wine Product form competition: Diet colas Diet Pepsi Diet Coke Juices Fast food Fruit flavored colas Product category competition: Soft drinks Video rentals Lemon limes Bottled water Generic competition: Beverages Coffee Baseball cards Budget competition: Food and entertainment Levelsof Competition*

3. What You Need to Do • Choose the Level of Competition Ex) Product Category Level  Soft Drinks; Snack/Health Bar • Industry Analysis = (Product) Category Analysis

4. Bases for Category Analysis** • Market Factors (at the Aggregate Level)* • Competitive Factors* • Michael Porter’s Framework* • Environmental Factors

5. I. Market Factors for Industry Analysis* • Category Size: Sales Volume or $$  two sources of info • http://www.beerinsights.com • http://www.npd.com • http://www.autonews.com • Growth Rate • Stage in Product Life Cycle* • Cyclicity & Seasonality • Marketing Mix (General Trends) • Product differentiation: Macro (http://www.census.gov) and Micro (advertising $$ or number of product lines or skus) • Profits & Financial Ratios (http://www.sec.gov) SIC: 5600 http://www.hbsp.harvard.edu

6. II. Competitive Factors for Industry Analysis Industry Concentration* 1. Intensity of Rivalry* 2. Power of Buyers (Two Types) 3. Power of Suppliers 4. Pressure from Substitutes 5. Threat of Entries and Exits Capacity Utilization

7. Industry Concentration Measures • The share of the largest firm • The combined shares of the three largest firms • The number of firms with at least x percent of the market (e.g., 1 percent) • The share of the largest firm divided by the share of the next three largest competitors • Herfindahl-Hirschman Index (HHI): -The Sum of Squared Shares of the Firms in the Industry • Use • Thresholds: below 1000; 1,000 to 1,800; above 1,800 http://www.census.gov/epcd/www/econ97.html

8. Characteristics of Intensive Rivalry • Many or Balanced Competitors • Slow Growth • High Fixed Costs • Lack of Product Differentiation • Any Example?

9. Buyer Power Is Higher When • Buyer accounts for a large percentage of the industry’s output. • Product is undifferentiated. • Threat of backward integration. • Buyer has full information. • Example:

10. Supplier Power Is Higher When • Suppliers are concentrated. • No or few Substitute for the product. • Differentiated product/high switching cost. • Limited Supply. • Example: LCD in the past

11. Industry Attractiveness based on Market Factors Attractiveness Market Factors

12. Industry Attractiveness based on Competitive Factors Attractiveness Competitive Factors

13. III. (Macro) Environmental Factors • Technological* • Economic* • Social • Political • Regulatory* For your project, choose only the most relevant factors from above

14. Major Topics for Consumer Behavior • Consumer Decision Process • Types of Buying Decisions • Influences on the Rate of New Product Adoption (RCCDC)

15. What We Need to Know about Current and Potential Customers* • Who buys and uses the product? • What customers buy and how they use it? • Where customers buy? • When customers buy? • How customers choose? • Why they prefer a product over others? • How do they respond to marketing programs? • Will they buy it (again)?

16. For competitor analysis, you need to know • Who are Your Major Competitors? • Major Competitors’ Objectives • Major Competitors’ Strategies* • Target Market • Core Strategy • Major Competitors’ Capabilities/Resources