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To accompany contemprory strategy analysis concepts techiniques application chapter04slides

Further
Further Topics
Topics in
in Industry
Industry
and
and Competitive
Competitive Analysis
Analysis
OUTLINE
 Extending 5-forces analysis
o Does industry matter?
o Complements
o Dynamic competition

 Game Theory
 Competitor Analysis
 Segmentation
 Strategic Groups



Does
Does Industry
Industry Matter?
Matter?
 
 
Schmalensee
(1985)
Rumelt (1991)
McGahan &
Porter 1997)
Hawawini et al
(2003)

Percentage of variance in firms’ return on assets
explained by:
Industry
Firm-specific
Unexplained
effects
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
The Value
Value Net
Net
CUSTOMERS

COMPETITORS

COMPANY

SUPPLIERS

COMPLEMENTORS


Five
Five Forces
Forces or
or Six?
Six? Introducing
Introducing Complements
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
Dynamic Competition
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
The Contribution
Contribution of
of Game
Game Theory
Theory
to
to Competitive
CompetitiveAnalysis
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
A Framework
Framework for
for Competitor
Competitor Analysis
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
Segmentation Analysis:
Analysis: The
The
Principal
Principal Stages
Stages


Identify key variables
and categories.



Construct a segmentation matrix



Analyze segment attractiveness



Identify KSFs in each segment



Analyze benefits of
broad vs. narrow scope.

Identify segmentation variables
Reduce to 2 or 3 variables
Identify discrete categories for
each variable

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
Industrialbuyers
buyers

Characteristics
Characteristics
of
ofthe
theBuyers
Buyers

Household
Householdbuyers
buyers

Distribution
Distributionchannel
channel
Opportunities
Opportunitiesfor
for
Differentiation
Differentiation

Characteristics
Characteristics
of
ofthe
theProduct
Product

Geographical
Geographical
location
location

••Size
Size
••Technical
Technical
sophistication
sophistication
••OEM/replacement
OEM/replacement

••Demographics
Demographics
••Lifestyle
Lifestyle
••Purchase
Purchaseoccasion
occasion
••Size
Size
••Distributor/broker
Distributor/broker
••Exclusive/
Exclusive/
nonexclusive
nonexclusive
••General/special
General/special
list
list

••Physical
Physicalsize
size
••Price
Pricelevel
level
••Product
Productfeatures
features
••Technology
Technologydesign
design
••Inputs
Inputsused
used(e.g.
(e.g.raw
rawmaterials)
materials)
••Performance
Performancecharacteristics
characteristics
••Pre-sales
Pre-sales&&post-sales
post-salesservices
services


Characteristics
Characteristics
of
ofthe
theBuyers
Buyers

Industrial
Industrialbuyers
buyers

*Size
*Size
*Technical
*Technical
sophistication
sophistication
*OEM/replacement
*OEM/replacement

Household
Householdbuyers
buyers

*Demographics
*Demographics
*Lifestyle
*Lifestyle
*Purchase
*Purchaseoccasion
occasion

Distribution
Distributionchannel
channel
Opportunities
Opportunitiesfor
for
Differentiation
Differentiation

Characteristics
Characteristics
of
ofthe
theProduct
Product

Geographical
Geographical
location
location

*Size
*Size
*Distributor/broker
*Distributor/broker
*Exclusive/
*Exclusive/
nonexclusive
nonexclusive
*General/special
*General/special
list
list

*Physical
*Physicalsize
size
*Price
*Pricelevel
level
*Product
*Productfeatures
features
*Technology
*Technologydesign
design
*Inputs
*Inputsused
used(e.g.
(e.g.raw
rawmaterials)
materials)
*Performance
*Performancecharacteristics
characteristics
*Pre-sales
*Pre-sales&&post-sales
post-salesservices
services


Segmenting
Segmenting the
the European
European Metal
Metal Can
Can Industry
Industry

Food
Steel 3-piece
Steel 2-piece
Aluminum 2-piece

General cans
Composite cans
Aerosol cans

Fruit Juice

Pet food

Soft drink

Beer

Oil


Segmenting
Segmenting the
the World
WorldAutomobile
Automobile Market
Market

REGION
US& Canada
Luxury Cars
Full-size sedans
Mid-size sedans
Small sedans
Station wagons
Passenger minivans
Sports cars
Sport-utility
Pick-up trucks

W.Europe

E.Europe

Asia

Lat America

Australia

Africa


Vertical
VerticalSegmentation
Segmentation&& Industry
IndustryProfit
ProfitPools
Pools
—The
—TheUS
USAuto
Auto Industry
Industry
25
%

Operating margin

20
Service & repair

Leasing
15

Warranty
Auto
manufacturing
New car
dealers

10

5

Auto
loans
Used car dealers

Auto
insurance

Aftermarket
parts
Auto
rental

0
0

Gasoline
Share of industry revenue

100%


Segmentation
Segmentationand
andKey
KeySuccess
SuccessFactors
Factorsin
inthe
theU.S.
U.S.Bicycle
BicycleIndustry
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
Strategic Group
Group Analysis
Analysis

A strategic group is a group of firms in an industry
following the same or similar strategy.
Identifying strategic groups:
• Identify principal strategic
variables which distinguish
firms.
• Position each firm in relation
to these variables.
• Identify clusters.


Strategic
StrategicGroups
Groupsin
in the
theWorld
WorldAutomobile
Automobile Industry
Industry

GLOBAL, BROAD-LINE
PRODUCERS
e.g., GM, Ford, Toyota, Nissan,
Honda, VW, DaimlerChrysler

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
StrategicGroups
GroupsWithin
Within the
the World
World Petroleum
Petroleum Industry
Industry

Kuwait Petroleum
PDVSA
NATIONAL
Iran PRODUCTION
COMPANIES
NOC

1.5
1.0
0.5
0

Vertical Balance

2.0

INTERNATIONAL
UPSTREAM Premier
Apache
COMPANIES Oil

INTEGRATED OIL
MAJORS
INTERNATIONAL
UPSTREAM,
REGIONALLY
FOCUSED
DOWNSTREAM

Dana Petroleum
INTEGRATED
DOMESTIC
OIL COMPANIES

Exxon
-Mobil
Chevron
Peme
Petronas
INTEGRATED
Royal Dutch
Texaco
Lukoil x
PetroChina
INTERNATIONAL -Shell Gp.
Conoco
Phillips
Indian Oil
Phillips
MAJORS
Petrobras
ENI
Statoil

BP-Amoco

Elf-Fina-Total
ENI
Repsol
YPF
Repsol

Nippon
Valero
Sunoco

0

10

NATIONALLY-FOCUSED
DOWNSTREAM COMPANIES

20

30

40

INTERNATIONAL
DOWNSTREAM
OIL COMPANIES

Neste
Ashland

50

Geographical Scope

60

70

80



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