Further Topics in Industry and Competitive Analysis OUTLINE
- Slides: 17
Further Topics in Industry and Competitive Analysis OUTLINE § Extending 5 -forces analysis o Does industry matter? o Complements o Dynamic competition § Game Theory § Competitor Analysis § Segmentation § Strategic Groups
Does Industry Matter? Schmalensee (1985) Rumelt (1991) Mc. Gahan & Porter 1997) Hawawini et al (2003) Percentage of variance in firms’ return on assets explained by: Industry Firm-specific Unexplained effects variance 19. 6% 0. 6% 80. 4% 4. 0% 44. 2% 44. 8% 18. 7% 31. 7% 48. 4% 8. 1% 35. 8% 52. 0%
The Value Net CUSTOMERS COMPETITORS COMPANY SUPPLIERS COMPLEMENTORS
Five Forces or Six? —Introducing Complements SUPPLIERS Bargaining power of suppliers The suppliers of complements create value for the industry and can exercise bargaining power INDUSTRY COMPETITORS POTENTIAL ENTRANTS COMPLEMENTS Threat of new entrants Threat of Rivalry among existing firms Bargaining power of buyers BUYERS SUBSTITUTES substitutes
Dynamic 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 is less useful—Competitive behavior and industry structure jointly determined by underlying conditions of technology, demand & costs
The Contribution of Game Theory to Competitive Analysis Main value: 1. 2. Framing strategic decisions as interactions between competitors Predicting outcomes of competitive situations involving a few, evenly-matched players Some key concepts: 1. 2. 3. 4. Competition and Cooperation—Game theory can show conditions where cooperation more advantageous than competition Deterrence—changing the payoffs in the game in order to deter a competitor from certain actions Commitment—irrevocable deployments of resources that give creditability to threats 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
A Framework for Competitor Analysis OBJECTIVES What are competitor’s current goals? Is performance meeting there goals? How are its goals likely to change? STRATEGY How is the firm competing? ASSUMPTIONS What assumptions does the competitor hold about the industry and itself? RESOURCES & CAPABILITIES What are the competitors’ key strengths and weaknesses? PREDICTIONS • What strategy changes will the competitor initiate? • How will the competitor respond to our strategic initiatives?
Segmentation Analysis: The Principal Stages 1. Identify key variables and categories. Identify segmentation variables Reduce to 2 or 3 variables Identify discrete categories for each variable 2. Construct a segmentation matrix 3. Analyze segment attractiveness 4. Identify KSFs in each segment 5. Analyze benefits of broad vs. narrow scope. Potential for economies of scope across segments Similarity of KSFs Product differentiation benefits of segment focus
The Basis for Segmentation: Customer and Product Characteristics Industrial buyers Characteristics of the Buyers Household buyers Distribution channel Opportunities for Differentiation Characteristics of the Product Geographical location • Size • Technical sophistication • OEM/replacement • Demographics • Lifestyle • Purchase occasion • 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
Industrial buyers Characteristics of the Buyers Household buyers Distribution channel Opportunities for Differentiation Characteristics of the Product Geographical location *Size *Technical sophistication *OEM/replacement *Demographics *Lifestyle *Purchase occasion *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
Segmenting the European Metal Can Industry
Segmenting 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
Vertical Segmentation & Industry Profit Pools —The US Auto Industry 25 % Operating margin 20 Service & repair Leasing 15 Warranty Auto manufacturing Auto New car loans dealers Used car dealers 10 5 Auto insurance Aftermarket parts Auto rental 0 0 Gasoline Share of industry revenue 100%
Segmentation and Key Success Factors in the U. S. Bicycle Industry SEGMENT Low price bicycles sold primarily through department and discount stores, mainly under the retailer’s own brand (e. g. Sears’ “Free Spirit”); Medium-priced bicycles sold primarily under manufacturer’s brand name and distributed mainly through specialist bicycles stores; 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 *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 High-priced bicycles for enthusiasts. Children’s bicycles (and tricycles) sold primarily through toy retailers (discount toy stores, department stores, and specialist toy stores). *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.
Strategic 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.
Strategic Groups in the World Automobile Industry GLOBAL, BROAD-LINE PRODUCERS e. g. , GM, Ford, Toyota, Nissan, Honda, VW, Daimler. Chrysler Broad REGIONALLY-FOCUSED BROAD-LINE PRODUCERS e. g. Fiat, PSA, Renault, Kia, PRODUCT RANGE GLOBAL SUPPLIERS OF NARROW MODEL RANGE e. g. , Subaru, Isuzu, Suzuki, Saab, Hyundai, Daihatsu NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS e. g. Tofas, Proton, Maruti First Auto Works (China) LUXURY CAR MANUFACTURERS NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e. g. , Bristol (U. K. ), Classic Roadsters (U. S. ), Morgan (U. K. ) Narrow National e. g. , Aston Martin, BMW, Rolls Royce (owned by VW) PERFORMANCE CAR PRODUCERS e. g. , Porsche, Ferrari (owned by Fiat) Maserati, Lotus GEOGRAPHICAL SCOPE Global
Strategic Groups Within the World Petroleum Industry 1. 5 INTEGRATED DOMESTIC OIL COMPANIES Statoil Pemex INTEGRATED OIL MAJORS INTERNATIONAL UPSTREAM, REGIONALLY FOCUSED DOWNSTREAM Adanarko Kuwait Petroleum PDVSA NATIONAL Iran PRODUCTION COMPANIES NOC 1. 0 0. 5 Vertical Balance 2. 0 INTERNATIONAL Apache UPSTREAM Premier COMPANIES Oil BP Chevron Petronas Lukoil Petro. China Indian Oil Petrobras THE SUPER MAJORS Royal Dutch Shell INTERNATIONAL DOWNSTREAM OIL COMPANIES Neste Ashland 0 Nippon Valero Sunoco Conoco Phillips ENI Elf-Fina-Total ENI Repsol YPF Repsol Exxon -Mobil 0 10 NATIONALLY-FOCUSED DOWNSTREAM COMPANIES 20 30 40 50 Geographical Scope 60 70 80