Chapter 3 Worksheet
The concepts in this worksheet correspond directly with the text. If you do not understand the concept or need to refresh
your memory, please refer to the text. I provide the page reference for each of the criteria. You should also use the CDROM for concepts that require more detailed explanation than the text provides.
The purpose of the external analysis is to identify opportunities and threats for the industry you are analyzing. Do not
focus on the company under analysis. Focus on the industry in which the company competes. Make sure your analysis of
the facts leads to a logical determination of specific opportunities and threats associated with the criterion you are
analyzing. Consider each criterion from a strategic perspective. In other words, does your analysis lead you to conclude
how or in which ways does the criterion under analysis create opportunities or threats for the industry or specific
companies in the industry? State the specific nature of the opportunity or threat. This will strengthen your analysis and
help you with your subsequent SWOT analysis.
Do not use speculative statements. Typical key words indicating speculation include: if, should, could, would, and may.
Avoid contractions in written business reports. You only use contractions in a business report when it involves a direct
quote.
Macro-environment forces
Criteria
(Refer to page 74.)
The economy at large
(Address the economic conditions during
the timeframe of the case.)
Legislation and regulation
Facts
What does this mean?
The economy at large was very robust during
the time frame of the case. Memphis and the
surrounding area were growing mainly due
to the establishment of 9 casinos in Tunica
Mississippi, which is about 20 miles from
Memphis. The market grew over 15% in
1996
This is an opportunity for
companies in the industry to
grow their sales volume.
Please elaborate on the
specific nature of the
opportunity (ies). This
comment applies throughout
your worksheet. The casinos
have contributed to population
increases in the market. The
casinos are also attracting
customers who expect to dine
on foods they are accustomed
to. Specialty sausage is among
the food they seek. The
casinos are willing to pay a
premium and offer variety so
that they may satisfy their
customers appetites.
The USDA regulations are
reasonably easy to comply
with and therefore do not
prevent a significant barrier to
new entrants. This is a
significant threat to the
existing companies as nearly
any company may easily enter
the industry.
The USDA imposes some regulation on
sausage producers that want to operate on a
commercial scale. Government regulations
specified that nutrition facts must be
included on all food products.
1
Population demographics
The Memphis market is growing in
population. The opening of 9 casinos in
Tunica, Mississippi, which is only 20 miles
from Memphis, is largely responsible for
attracting approximately 16 million visitors
annually to the Memphis region. These
visitors are bringing prior knowledge of and
appreciation for specialty sausage. The
casinos are bringing increased prosperity to
the local residents. While these facts are
interesting, they do not address the
population demographic categories. Please
address the demographic categories. How
are the population’s demographics or
changing demographics impacting
opportunities or threats for this industry?
Increased business activity and
the larger number of visitors
present an opportunity for
growth for the specialty
sausage industry in this area.
Please elaborate on the
specific nature of the
opportunity (ies).
Societal values and lifestyles
Sausage is growing in acceptance as more
than just a breakfast item. The market for
specialty sausage, which can be sold at a
premium, has increased particularly with the
casino goers. Lifestyle changes are causing
consumers to be increasingly health
conscious. These same consumers are also
finding that they have less time to prepare
meals and are looking for products that can
be ready in a half hour or less.
Technology
There have been no significant technological
advances in the specialty sausage industry.
E-commerce opportunities may potentially
exist. This response should be in the “what
does this mean” column. Please elaborate or
provide supporting narrative that describes
the specific nature of the opportunity.
These conditions are
presenting opportunities for
specialty sausage makers to
diversify their product
offerings such as Healthy
Choice has. There is also the
opportunity for increased
market due to the acceptance
of sausage for meals other than
breakfast.
Health consciousness and meal
preparation time could
ultimately be threats to the
industry if the industry can not
offer products to respond to
customers’ changing tastes and
they begin switching to the
readily available substitutes.
The lack of specialized or
unique technology is a threat
to the existing firms as a
company can easily acquire
the equipment necessary to
compete with them.
(Population demographics analysis relies on
developing various categories of the
population and analyzing their impact on the
industry. Typical categories include gender,
age, education level, geographic location,
and income levels. In addition to population
demographics, this type of categorization
includes ethno-graphics and psychographics
1. What are the Industry's dominant economic features (page 77)?
Please note that table 3.1 provides a sample profile of the sulfuric acid industry. Table 3.2 provides examples of the
strategic significance of each of the criterion. Make sure you know the industry you are analyzing.
Criteria
Market size
Facts
What does this mean?
The retail portion of the Memphis market The local market is in a state of high growth,
2
Scope of the competitive
rivalry
(The competitive scope
criterion addresses
geographic scope (Global,
National, Regional, and
Local), product scope,
market scope and so on.)
Market growth rate and
position in the business
cycle
Number of rivals and
their relative size
(Relative size refers to
the market share based
on total sales for the
overall market or, when
applicable, individual
market segments.)
Number of buyers and
their relative size
(Address the number of
buyers in each market and
market segment. Buyer
size refers to the buyer’s
volume of sales for the
industry.)
is 12.25 million dollars on 6.1 million
pounds of sausage products sold. The
market grew 15.4% in 1996.
The scope of the rivalry is local with
small producers of specialty sausage
fighting for market share. Some national
players are involved in the Memphis
market. Product breadth tends to be
large for the smaller companies and
narrow for the larger national companies.
producing opportunities for specialty companies
such as Guiseppe’s to grow their revenues.
The retail segment grew 15.4% while the
entire local market grew at a rate of
18.3% in 1996. The industry appears to
be entering the later stages of growth and
possibly has already entered the mature
stage.
There were 20 or 30 companies who
have sales in the Memphis market. Most
were national players such as
Johnsonville, Jimmy Dean and John
Morrell. Locally Guiseppe’s main rival
was Dino’s.
This is an opportunity for the smaller producers
to increase revenues. Enough growth exists to
offer opportunities for the local producers but
there is probably not enough growth for the
national companies to target the market.
There are two major buyers in the
Memphis market. These are the
(brokers) retailers and the food service
industry. There are also numerous
individuals who make direct purchases.
The individuals do not pose a threat in the
industry because the retailers and food service
companies purchase the majority of product.
The retailers and food service companies present
a threat of lower profits to the existing
companies as they prefer to make purchases
through brokers who expect to profit from this
service.
Although it would be possible there is no real
threat of vertical integration either forwards or
backward in the specialty sausage industry.
Extent of rivals’ vertical
integration (How far
forward or backwards
have the rivals extended
their value chain?)
Extent of rivals
horizontal integration
There is no evidence of backwards,
vertical integration in the industry.
Guiseppe’s and a couple others make
small individual sales, which are
evidence of forward integration.
The case makes no mention of horizontal
integration.
Types of distribution
channels rivals use to
access customers (Do
the channel types vary
by customer segment?)
Sausage is sold to the individual
consumer via mail order. The retailers
are reached through a retail broker and
an independent or company distributor.
The food service buyers are similarly
reached through a food service broker
and distributor.
The pace of technological advance in the
industry has been slow.
Pace of technological
innovation in
production process
This arrangement tends to increase the
competition between rivals. Because of this
competitive situation there is a threat of lower
profit margins for the existing firms.
The high level of competition poses a threat to
the industry of declining profit margins. The
large national players drive the market price
down reducing the profits the specialty
companies can make, while the small companies
force their larger rivals to increase product
offering which can drive down their profits.
The distributors and brokers pose a slight threat
to market penetration while holding down the
profits that a manufacturer can achieve. This
threat is not insurmountable to a company
willing to establish the necessary relationships
for competing in the market.
The relative lack of technology acts as a threat of
entry to the current market participants.
3
innovation
Pace of technological
innovation in product
introduction
Extent to which the
rivals products and/or
services are
differentiated
Extent to which rivals
use economies of scale
in:
 Purchasing
 Manufacturing
 Services
 Transportation
(logistics)
 Marketing
 Advertising
 General and
Administration
 Others
Extent to which the key
industry participants are
clustered in one
geographic location
Extent to which certain
industry activities result
from learning and
experience curve effects
Capacity surplus or
shortage in the industry
Capital requirements and
the ease of entry or exit
Industry profitability
Degree of alliances
Product innovation is relatively fast with
new products being offered and copied at
a steady pace. Technology is not a
significant contributor to this innovation.
Most of the industries products are
essentially identical with much
competitive copying and inter-brand
pricing.
There is no true economy of scale in the
industry. The national brands do hold
some advantages over the smaller local
companies due to sheer size and
marketing prowess. These national
companies have achieved brand
recognition and hold most of the
retailers’ limited shelf space. This
hampers the smaller specialty
companies’ ability to increase market
presence.
Would you consider that some rivals do
have economies of scale while others do
not?
The small specialty makers are local to
the Memphis Market. The National
competitors operate out of different
locales.
Very little advantage is gained in the
industry from learning curve effects.
Guiseppe’s has excess capacity, as he
runs his operation on one shift. There is
no specific mention of the other rivals
capacity status.
Very little capital is required to enter the
specialty sausage industry making entry
and exit very simple.
Industry profitability is low to average
due mainly to the high level of
competition and availability of substitute
products.
There is little in the way of alliances in
the industry. We see some signs in the
distribution channels.
The lack of technological innovation is a
threatening to firms currently in the industry.
New entrants or existing rivals can quickly copy
new products.
This situation poses a threat that drives down the
market prices and offers little opportunity to
consistently generate a premium on the specialty
offerings.
This is a threat to the sausage makers as it is
relatively easy for new competitors to enter the
market. A company with a recognized brand
name would likely find it relatively easy to
establish themselves as suppliers of specialty
sausage.
A new entrant possessing adequate and cost
effective distribution capabilities could start their
company in almost any location. This is a threat
to the existing companies.
This acts as a threat as a new competitor can
easily enter the market and quickly become
competitive. This is a possessive pronoun. It
infers possession or ownership. It is not
appropriate to start a sentence with this.
Assuming there is a surplus of capacity this is an
opportunity to the existing companies, as they
will be able to manufacture the increased demand
in a cost effective manner.
This poses a great potential threat to the existing
companies of new rivals entering the market.
This acts as a barrier to new entrants.
This acts as a threat to the industry as new
competitors can easily penetrate the market.
(You can provide
additional economic
features)
4
1. What is competition like and how strong is each of the competitive forces (page 79)?
Criteria
RIVALRY (pages 81-84)
How many competitors are
there in this industry?
What is the relative size of each
competitor?
What is the industry
concentration ratio (C4)?
Facts
20 to 30 brands participate in the specialty
sausage industry. There are 8 or 9 top
competitors in the Memphis market.
Dino’s and Guiseppe’s are similar in size but
each faces competitions from the national
companies who are hundreds of times larger.
Although the small companies have an
advantage in their ability to offer many
sausage varieties their profit margin is kept
down due to the pricing advantage the
national companies own.
Conversely if the national companies
manufacture more varieties in smaller
quantities to be more competitive in local
markets, they face declining overall profit.
This information is not available.
What does this mean?
(Does this make the force strong or
weak for the industry? What does it
mean for the company?)
Competition is a strong force in the
industry. This is a threat to the
continued profitability of the
existing firms.
These diverse factors act as a threat
to overall profitability of the
existing firms. This tends to act as
a strong force to keep profits down.
 Top 4 company’s sales
Industry sales
What is the product or service
demand growth rate?
The specialty sausage market grew 18.3%
from 1996 to 1997.
Are rivals using price cuts or
other competitive weapons to
boost unit volume?
The large national brands chose to offer a
small number of sausage varieties at a low
price to the larger buyers such as the retailers
and food process companies.
Are the customer's switching
costs low?
Customer switching costs are low.
Substitutes are available at competitive
prices. Most often these substitutes are
available where specialty sausages are
purchased. Customers also find it very easy
to switch from one brand of specialty
sausage to another brand.
Are rivals launching moves to
change their market share or
industry position at the expense
of other industry participants?
Yes. Column two is for facts. Do not
answer the questions in this column.
Companies are copying successful products,
diversifying product offerings and waging
This high growth rate is an
opportunity for the existing firms to
increase their revenues.
This strategy threatens the overall
profitability of the existing
companies by making it difficult to
demand a premium for uniqueness
or variety.
These two factors combine to
increase the rivalry between the
sausage companies. They form the
incentive for the existing firms to
keep sell prices low to avoid the
loss of market share to rival firms
or substitute products. Do low
switching costs increase rivalry? If
so, what are the resulting
opportunities or threats?
These actions are driving down
potential profits by limiting the
price a rival can charge for its
product. Do these actions create
5
price competition.
What are the payoffs for
strategic moves?
Increased market share and revenue growth
are the payoffs for successful strategic moves
in the specialty sausage industry.
Does it cost more to exit the
industry than to continue
participation?
It is not costly to exit the sausage industry.
Firms will be more likely to leave then to
linger unprofitably. As profit margins
continue to dwindle, aggressive firms or
firms with lower costs may be able to drive
other firms out of the specialty sausage
industry.
How consistent are rivals
strategic visions, strategic
intents, objectives, strategies,
resources and origins?
The national companies operate in a similar
manner. They offer a small range of
products that they can manufacture in high
volumes. The smaller local firms tend to
offer more varieties that they produce in
small volumes. This allows them to find
niches in the overall market.
Currently the industry has not seen the
arrival of aggressive new entrants looking to
dominate the specialty sausage market.
Are strong new entrants
acquiring weaker rivals and
launching well-funded,
aggressive moves?
THREAT OF ENTRY
(pages 84-87)
Under the heading of new entrants, your analysis
should lead you to conclude that new entrants are
likely or unlikely to challenge the existing firms
in the industry. Therefore, new entrants are likely
(threat) or unlikely (opportunity) to pose an
opportunity or threat to the existing firms in the
industry.
What economies of scale exist
in each of the following areas:
 Production
 Purchasing
 Inbound and outbound
logistics
 Advertising
 Financing
 Customer service
 Raw materials
There are no significant economies of scale
in the specialty sausage industry. The larger
national brands do have an advantage due to
their brand recognition and ability to spread
their costs over a greater number of units.
opportunities or threats for the
industry?
These payoffs likely come with the
cost of reduced profit margin, as
any successful strategy would most
certainly require offering specialty
sausage at a reduced price.
As the specialty sausage industry
continues to mature, rivalry will
continue to intensify. As price
competition intensifies, companies
will have the opportunity to leave
the industry without suffering
significant losses. This should
allow the remaining firms to
operate their companies profitably.
These two diverse strategies pose a
threat to the industry. Each strategy
has its competitive advantage, and
there are enough firms in each
group to drive profits down.
We do anticipate the arrival of this
type of new rival. This is an
opportunity for the existing firms to
grow or defend their current
position. Please re-read your
response. If there are new entrants,
then rivalry increases. The
increased rivalry is a threat for the
industry. Defending your market
position inherently is defending
against a threat.
This poses a threat to existing firms,
as it is relatively easy for new
entrants to join the industry
particularly if the new entrant is an
established firm with the listed
capabilities already in place.
Please refer to my previous comment.
6


R&D
Other steps in the value
chain?
Cost and resource
disadvantages independent of
size
Existing firms do not have a significant
advantage in the industry unrelated to size.
The one area they may have a slight
opportunity is in access to the distribution
channels.
What are the learning curve and
experience effects to enter?
Learning curve effects do not contribute
significantly to lower unit costs.
Inability to match the
technology and specialized
know-how of firms already in
the industry. How accessible is
the industry's technology?
Brand preferences and customer
loyalty
The industry’s technologies are readily
accessible.
What are the capital
requirements to enter?
What other resource
requirements are necessary to
enter?
What is the access to
distribution channels?
What regulatory policies apply?
What tariffs and trade
restrictions apply?
SUBSTITUTES (pages 87-88)
This is a threat to the existing
companies, as new entrants have no
significant obstacles to overcome in
their quest to become competitive
within the industry. Would you
consider access to the brokers and
the limited retailer shelf space as
significant obstacles?
This poses a threat, as new entrants
can quickly become cost
competitive.
This is also a threat to the existing
firms, as new entrants can easily
acquire the equipment necessary to
produce specialty sausage.
It’s expensive for start-up companies to
establish brand recognition and to make a
better quality or service for a lower price.
Customers taste preferences can lead to
brand loyalty.
No significant capital is required to enter the
industry.
There are no specific resources required to
gain entry.
This is an opportunity for the
established firms.
Use of the existing distribution channels is
critical to growth of market share and
revenues. It is relatively easy for new
entrants to access these channels. The
availability of selling space is limited
however and this may present a more
significant barrier to a new entrant trying to
displace a current firm.
Access to the distribution channels
is a mild deterrent to new entrants
in the specialty sausage industry.
New firms would find it difficult to
penetrate these channels. An
existing food producer that decided
to get in the specialty sausage
business may already have access
and find this as easily overcome.
See my previous comments regarding
brokers and retail shelf space.
Government agencies can limit or stop entry
by requiring licenses and permits. These are
relatively easy to acquire for new companies.
None apply in the specialty sausage industry.
This is a serious threat to existing
firms.
This is also a threat to the existing
firms.
This easy access to permits, is a
threat to the existing firms.
This normally would act as a threat
however it is unlikely that a foreign
producer would enter this market.
Under the heading of substitutes, your analysis
should lead you to conclude that substitutes are
likely or unlikely to challenge the existing
7
products the industry produces. Therefore,
substitutes are likely (threat) or unlikely
(opportunity) to pose an opportunity or threat to
the existing firms in the industry.
What is the availability of
attractively priced substitutes?
Is the substitute of better,
worse, or equal quality?
Is the substitute of better, worse
or equal performance?
Is the substitute of better, worse
or equal nutrition?
Can buyers easily switch to the
substitutes?
SUPPLIERS (pages 88-90)
Is the item or service a
commodity available on the
open market from many
suppliers who are capable of
filling the order?
Are there good substitutes for
the product or service to which
the buyers can easily switch?
Is the company a major buyer?
Does the supplier dominate the
industry? (The supplier
provides the industry with an
item that accounts for a sizable
fraction of the costs of an
industry's product (or service),
is crucial to the industry, or
significantly affects product
Does an outside supplier
provide a cost advantage over
vertical integration?
Does an outside supplier
provide other advantages over
vertical integration?
What types of working
Attractively priced alternatives to specialty
sausage are plentiful.
Chicken, beef, pork, and fish are all
comparatively priced substitutes.
Most of these substitutes are likely to be
viewed as of equal quality in the price range
of sausage. The substitutes will do equally
well as the entrée in a meal.
Most substitutes would be considered a
healthier alternative to sausage. Most
specialty sausage consumers do not appear to
place an emphasis on the nutritional value of
their purchase.
Yes, one could purchase the substitutes in the
same place, and not suffer any undo costs.
Substitutes’ attractive prices are a
threat to the industry.
The ingredients needed to make sausage
could be considered a commodity, as there
are many suppliers capable of filling the
industry needs.
This is a neutral factor as the
supplier has no advantage but the
companies do not hold much of an
advantage either.
There are several good substitutes that can be
used as ingredients in specialty sausage.
The opportunity to use substitute
ingredients poses a slight threat to
the suppliers.
This is a threat to the sausage
manufacturers, as they do not have
great leverage in keeping the price
of ingredients down.
The diversity of buyers and
availability of numerous suppliers is
an opportunity for the sausage
makers.
The sausage industry as a whole is not a
major buyer of the majority of products
required to manufacture sausage.
No one supplier seems to dominate the
industry. Sausage makers are spread out
geographically and the cost of transporting
sausage ingredients makes it unlikely that
one supplier could service all the sausage
makers.
Purchasing from an outside supplier provides
a cost advantage to sausage makers over
becoming vertically integrated. A variety of
ingredients that are not specific to specialty
sausage making are required.
The suppliers do not possess any other
specific advantage in addition to being able
to supply the sausage makers with lower cost
supplies.
There are no significant strategic advantages
Substitutes’ performance and
quality are threats to the sausage
industry.
Substitute products nutritional
advantages are not a threat to the
specialty sausage producers.
This is a definite threat to specialty
sausage makers.
This is a threat to the sausage
companies. They do not possess
the opportunity to vertically
integrate.
This is neither threat nor
opportunity for the sausage makers.
Neither the buyer nor the seller
8
relationships exist? Start by
listing the types of working
relationships that exist. Then,
focus on the strategic
importance of relationships with
suppliers in this industry. Are
these relationships of strategic
value for the competitors in the
industry? If so, why and how
do the relationships impact the
competitive structure and
environment of the industry?
What is the relative quality of
the supplier and his services or
products?
BUYERS (pages 90-92)
What is the cost of switching?
How many buyers are there in
this industry?
What is the relative size of each
buyer?
What is the buyer's knowledge
level?
Can the buyers threaten the
industry with backward
integration?
Are the industry's products
discretionary purchases?
for the local specialty sausage makers. No
industry alliances are mentioned in the case.
appears to have a significant
strategic advantage in this
relationship.
It is relatively easy for sausage makers to
obtain the quality of supplies they require.
The buyers are unlikely to be tied to
an individual supplier due to a
concern over quality. There are
many opportunities to find the
desired quality.
There is very little cost to the buyer when it
comes to switching from one brand to
another.
The sausage makers have very little
leverage with their customers. This
poses a threat to the sausage maker
that their customers can easily
switch to another producer.
Sellers have many outlets for their
product. This is an opportunity for
the sausage makers.
Sausage makers’ customers are
capable of dictating terms of sale to
them. This is a threat to their
profitability.
The buyers taste preferences pose a
mild threat especially to the small
specialty firms.
This is not a threat to the firms in
the industry.
There were many different retailers and
service industries in the local market. There
are many individual buyers.
Large retailers tend to have influence over
suppliers. The casinos are also very
important to suppliers like Guiseppe’s.
Small individual buyers have little influence.
The buyers do not possess great knowledge
although many are likely to follow their taste
preferences.
It is unlikely that any of the significant
buyers pose a threat of backwards
integration. It would not be profitable for the
larger buyers to begin making their own
sausage.
Buyers can easily choose not to purchase
specialty sausage. There are many
substitutes that are readily available to the
buyers.
The ability of the buyers to
purchase other products to replace
specialty sausage purchases is a
threat to the sausage makers.
9
3. What is (and how are they) causing the industry's competitive structure and business environment to change (page 93)?
Please refer to the Cannondale1 example on the web site for good examples of appropriate analysis for this question.
Factors
Industry competitive structure
Industry business environment
Strategic implications
(pages 94-100) This factor is supposed to capture how the
This factor is supposed to capture how
drivers of change are altering the industry's
the drivers of change are altering the
competitive structure.
industry's business environment.
The competitive structure of an industry entails the number of competitors and their
competitive relationships. For example, an industry entering maturity causes fewer, larger
competitors. This affects the industry's structural arrangement between rivals, buyers and
suppliers. When approaching maturity or when in decline, the industry's business
environment will create intense rivalry for a diminishing market.
Internet and
new ecommerce
opportunities
These opportunities are not specifically talked
about in the case. We expect firms will seek to
use the internet to market specialty sausage to
individual customers. Sausage snobs of the future
will be able to order product on line and receive
next day delivery.
Increasing
globalization
of the industry
Approximately 25 to 30 major brands are
competing within the Memphis area.
Globalization in the specialty sausage industry
although unlikely in the near term would likely
cause mergers among these companies.
E-commerce opportunities could close
the gap between the large national
firms and the smaller local companies.
A small company with a clever
marketing campaign may gain new
customers nationally and ship product
all over the United States.
With the growing changes in
technology businesses must review
their practices to fully integrate the
internet and the new e-commerce.
Companies will need to evaluate
partnerships with existing ecommerce companies such as
Amazon. Other companies may seek
to build their own e-commerce sales
network.
Globalization would likely threaten the Globalization is unlikely in the near
companies that are participating in the future. Companies would need to
specialty sausage industry. Current
overcome transportation issues related
specialty sausage companies would
to freshness of product. Companies
need to establish distribution systems
would likely seek to merge to get
capable of quickly transporting both
greater manufacturing capability over
sausage and the ingredients to make
a wider geographical area.
sausage in an effort to ensure
freshness. The costs associated with
accomplishing this would strain the
already low profit margins in the
10
Long term
industry
growth rate
In 1996, the sausage industry registered 18.3%
growth. This high growth rate is likely to entice
new competitors particularly some of the larger
meat producers. If companies such as Perdue
were to enter the market it is likely that
partnerships and consolidation would increase.
Who buys the
product and
how do they
use it
Specialty dinner sausage sales consisted mostly of
2 segments retail (super market) and food
services, which are comprised of restaurants and
institutions, such as schools, hospitals and others
establishments
Retailers buy the product for resale as is to
individual consumers, typically at a very small
margin. Retailers with huge buying power such
as Wal-Mart and Sam’s Club have begun to
displace some of the smaller supermarkets that
would normally carry specialty sausage products.
The food service buyers use the specialty sausage
as the entree in meals that they prepare and sell to
individual consumers. Independent restaurants
are facing increasing competition from franchised
restaurants for market share in the food services
industry.
industry.
The potential entry of large established
meat producers poses a strong threat to
the national companies such as Jimmy
Dean who have contracts with retailers
that effectively prevent smaller
companies such as Guiseppe’s from
easily gaining market share. These
large meat producers also have
distribution with these same retailers
thus giving them the opportunity to
displace companies such as Jimmy
Dean.
“Shelf space and competitive inter
brand pricing were keys” to a
successful company in this
environment. The potential loss of
supermarket customers being forced
out of business by giant retailers could
be devastating to some of the current
industry firms. On the flip side,
securing a customer such as Sam’s
Club or Wal-Mart might vault a
sausage supplier to industry leader in a
short period of time.
Similar opportunities and threats exist
with the restaurant buyers. A current
customer could be forced out of
business by franchise restaurants.
Conversely securing a contract with
the McDonalds of specialty sausage
could provide an existing firm with a
dramatic revenue increase.
The leading national companies may
be forced to aggressively defend the
positions that they currently have in
the market if the large meat producers
take an interest in specialty sausage.
One or more of the existing
companies may look to sell their
manufacturing capabilities to these
new entrants in an effort to get out of
the industry as they would likely be
facing declining profit margins and
possibly loss of market share.
Larger national sausage manufacturers
might seek to become the low cost
producer so that they may entice firms
such as Wal-Mart or Sam’s Club to
carry their specialty sausage by
offering very low prices. This type of
price competition could lead to many
companies becoming unprofitable
sparking industry consolidation.
Other companies might be tempted to
partner with an existing franchise
chain, in an attempt to market their
specialty sausage to a whole new set
of consumers.
If a company was successful under
either of these strategies they would
likely seek to change the relationships
that they currently have with their
existing suppliers of the ingredients
necessary to manufacture specialty
sausage.
11
Product
innovation
Product innovation is a key to success for small
companies able to differentiate themselves by
offering “exceptional, distinctive- tasting and
quality sausages. Competitors are quick to copy
successful new products. New suppliers could be
needed to provide the ingredients or packaging
necessary to support new products that are created
in response to customers’ preferences changing.
Technological
change
Technological advances can greatly increase the
industry competitive force. There have been no
technological advances of note in the production
and packaging of specialty sausage.
Technological change is being driven by internet
development.
Innovative new marketing campaigns are likely to
be launched by firms utilizing the growing
internet. Firms will look to the internet as a
possible vehicle to increase direct sales to
consumers diverting these sales from existing
retailers. Firms may also seek to form
collaborative relationships with existing internet
firms in an attempt to market specialty sausage.
Marketing
innovation
Entry of major
firms
Currently no major firms are entering the industry.
The biggest concern to existing firms is that large
meat packing companies decide to enter the
market. This threat would likely increase pricing
pressure. Existing firms may be forced to
Buyers’ tastes and preferences are
constantly changing. Two examples
that may affect the specialty sausage
industry are consumers becoming
increasingly health conscious and
consumers desire to more quickly
prepare meals. Companies able to
satisfy these and other buyer
preferences with new sausage
offerings are likely to become more
successful. A company such as
Healthy Choice with its experience in
low fat, microwave products is an
example of a new entrant due to
changing environment.
The technology used in the specialty
sausage is fairly mature and readily
available. This makes it easy for new
companies to enter the market.
R & D efforts will be increased in an
effort to produce specialty sausage
that is either healthier or quicker to
prepare. Current firms may look to
partner with companies having
expertise with microwave or low fat
products. Existing firms with these
capabilities may look to gain entry
into the specialty sausage market.
The internet could become an
equalizer for small firms looking to
compete against the larger national
firms. The possibility exists, that new
entrants could be successful utilizing
an innovative internet marketing
campaign.
All specialty sausage firms will be
forced to alter their marketing
strategies to include the internet
eventually. Aggressive firms will
make offensive moves to capitalize on
opportunities the internet brings. As
these moves begin to pay dividends
the other companies will be forced to
use defensive moves or counter with
their own offensives.
Most existing firms would likely put
more strategic emphasis on becoming
a low cost provider. Aggressive
moves would likely be launched in an
effort to increase market share.
Major new entrants would heighten
the already strong competitive
environment that specialty sausage
firms operate in. This would likely
threaten the profitability of most if not
Technological change is not driving
changes in the way sausage
companies operate strategically with
the exception of change brought about
by development of the internet.
12
examine their current relationships with suppliers
in an effort to drive down their costs.
Exit of major
firms
Diffusion of
technical
know-how
There have been no recent instances major firms
exiting the industry.
This is not a major competitive factor in the
specialty sausage industry. The technology and
skills required to manufacture sausage are mature
and readily available. The speed that new sausage
varieties are copied, by rival firms is evidence of
widespread technical know-how.
Increasing
globalization
Globalization is not affecting the industry
competitive structure. Approximately 25 to 30
major brands were already competing within the
Memphis area for market shares in the retail
segment. Although globalization creates new
partners, new challenges and also extends the
competitive field of the industry, globalization is
unlikely in this industry.
The specialty sausage industry is under increasing
pressure to lower costs. Unfortunately there does
not appear to be any low hanging fruit to pick in
the industry. Companies may look to establish
partnerships with distributors and suppliers in
order to lower costs. Firms should seek to use
company intranets or the internet as a way to
lower ordering and distribution costs.
Cost and
efficiency
all of the existing firms. It is likely
that existing firms would be forced to
leave the business or look to merge
with rivals seeking a competitive
advantage.
The industry business environment in
this sense has not been changed.
The diffusion of technological knowhow is normally a powerful stimulant
to increasing competition within the
business environment. In the case of
the sausage industry it is not.
Companies might look at harvesting
in an effort to gradually exit the
industry, realizing that the cost of
exiting is relatively small.
Globalization is not a threat to existing
companies. Profit margins in this
industry are not attractive enough to
entice firms to compete on a global
scale.
The need for specific strategy is
unnecessary due to globalization is
not taking place.
This driver is not affecting the
manufacturing aspects of companies to
a great extent. There have been no
breakthrough technologies for some
time. A meat, processing, firm
boasting low cost manufacturing
facilities, coupled with an efficient
supply chain, and a strong brand name
could be a significant threat to existing
firms if they were able to reduce prices
by as little as 5 or 10%. Existing
specialty sausage firms would be hard
pressed to lower their prices that much
without significant profit erosion.
Existing firms must put heavy
strategic emphasis on finding ways to
gain an advantage in cost and
efficiency internally as there are not
significant industry wide differences
in the cost structures of existing firms.
As maturation of the industry
continues it is likely that the surviving
firms will be the ones with the
greatest market share and lowest cost
structures.
No specific strategies are needed, as
competition has not been altered.
Diffusion of technical know-how does
not have current strategic
implications. Future strategies could
be altered by successful exploitation
of the internet and e-commerce
initiatives.
13
Growing
buyer
preferences for
differentiated
products
instead of a
commodity
product
Large segments of the industry’s customers
specifically upscale restaurants, individuals, and
casinos are demanding a variety of specialty
sausage. Most retailers are unable to provide this
variety due to shelf space concerns. Most national
producers prefer to offer less variety in larger
volumes. Differentiated suppliers may seek to
strengthen their relationships with buyers
demanding variety.
This growing demand for variety is
threatening to the larger companies.
Smaller companies willing to offer a
diverse range of products can eat away
at the market share of the larger
companies
Regulatory
and
government
policy changes
Despite the requirement to put nutritional
information on food products the specialty
sausage industry experienced double, digit growth
in the mid 1990’s. Regulatory changes do not
appear to be affecting this industry.
The likelihood of new entrants is
increased by the lack of barriers
imposed by regulators on the specialty
sausage industry.
Societal
concerns,
attitudes and
lifestyle
changes
Consumers are increasingly demanding healthier
food choices. Firms must work more closely with
their suppliers to ensure higher quality, healthier
ingredients. Suppliers in turn must make sure
they are capable of responding to the stricter
demands. Partnerships could develop to support
these changing demands between the firms and
their suppliers and buyers to ensure healthier
offerings.
These demands are an opportunity for
existing firms to differentiate their
products based on quality or nutrition.
There is an increased threat of entry by
new firms that have experience in
producing health food products.
Smaller companies will seek to
expand their product line in an effort
to compete against the national firms.
They may also look to find a niche in
the market where they can earn a good
profit and expand market share. The
larger firms may be forced to expand
the range of their product offering to
compete retain their current market
positions.
No significant strategic moves are
being necessitated by regulatory
changes. The necessity of having
nutritional labels on food products
may entice some firms to set strategies
to capitalize on buyers preferences for
healthier foods.
R&D expenditures are likely to
increase as companies search for
healthier alternatives to their existing
products. Companies will also look to
develop sausages that can be cooked
in less than 30 minutes to meet the
growing demand for quicker
preparation times. Some companies
may look to developing new sausage
products as an alternative to seeking
further cost reductions which are
becoming increasingly difficult to
obtain.
14
Reductions in
uncertainty
and risk
The specialty sausage industry is past the stage
where this is a strong factor affecting firms
currently in operation.
The fact that the industry is at this
stage is a threat to existing firms.
Potential new entrants are well aware
of the level of risk in the industry.
They are able to make an educated
analysis and decision on whether to
enter this industry or not. New
entrants are therefore likely to be
competitively viable.
Companies are likely to craft
defensive strategies to combat the
threat of entry and to protect their
current market share.
4. Which companies are in the strongest/weakest positions (page100)?
High
Quality
Medium
15
Low
Narrow
broad
Available Resources
Jimmy Dean
Bryan
Dino’s
Guiseppe’s
High
Price
Medium
16
What is their market share
objective (aggressive expansion,
expansion via internal growth,
expand by acquisition, hold
present share, give up share)?
Johnsonville
National
Dino’s
Regional
King Cotton
Regional
Overtake
the leader
Maintain
position
Move up a
Aggressive
expansion
Hold present
share
Hold present
Narrow
Bryan
What strategic moves are rivals likely to make next (page103)?
Getting
stronger
Stuck in the
middle
Stuck middle
Both
Broad
Defensive
Narrow
differentiation
Best cost
Defensive
What does this mean in terms of
their most likely moves?
What is their competitive strategy
(low cost, differentiation, broad
or narrow, best value)?
What is their strategic intent
(dominant leader, overtake the
leader, top 5, move up a position,
maintain position, survive)?
Jimmy Dean
What is their competitive position
(getting stronger, well
entrenched, stuck in the middle,
going after different market
position, losing ground,
retrenching)?
What is their strategic posture
(offensive, defensive, both)?
What is the competitive scope of
each (local, regional, national,
multi-country, or global)?
Low
broad
Market scope
Dino’s
Guiseppe’s
Refer to Table 3.3 on page 105.
Special promotions. Get quality out there by
advertising.
Get some new specialty sausage out there
Bring out new products at same low prices.
17
Jimmy Dean
Global
Bryan
Regional
John Morrell
Global
Overtake
the leader
share
Expansion via
internal growth
Aggressive
expansion
Expansion via
internal growth
Mr. Turkey
National
Healthy
Choice
Guiseppe’s
Original
sausage co.
National
Maintain
Position
Maintain
Position
Move up a
position
Hold present
share
Hold present
share
Expansion via
internal growth
Regional
position
Dominant
leader
Top 5
Well
entrenched
Getting
stronger
Getting
stronger
Both
Both
Narrow
differentiation
Broad
differentiation
Low cost
Well
entrenched
Well
entrenched
Seeking to add
to market
share.
Offensive
Market niche
They will expand their line of dinner sausages
in order stay on top.
Advertising and special promotions to get the
name out there. Become national.
Come out with more products. They can still
keep the costs low since they are backward
integrated.
Add other varieties of turkey sausage.
Offensive
Market niche
Add on some other low fat dinner sausages.
Defensive
Broad
differentiation
Slim down their product line and produce
only the more popular and profitable varieties.
Offensive
What are the key factors for competitive success (in this industry) (page 106)?
How does each competitor fare on each success factor? To use this tool, start by determining which of the KSF”s apply. Then provide your justification for
choosing these KSF”s. Generally, there are less than ten (10) KSF”s applicable to an industry. Then assess each of the industry competitor's capabilities for the
KSF. Please note I provide space for three competitors. You should add the number of columns necessary to evaluate all of the competitors in an industry. You
should also add industry specific KSF”s when they apply. Refer to Table 3.4 on page 107.
Manufacturing (production
of the product or service)
related KSF”s
Quality of manufacture
Marketing related KSF”s
Breadth of product and
product selection
Skills related KSF”s
Ability to develop
innovative products and
product improvements
Other KSF”s
Image and reputation
18
Questions in this
row apply for all
the sausage
companies listed.
What is their
capability for
this factor?
What does
this mean?
What is their
capability for
this factor?
What does
this mean?
What is their
capability for
this factor?
What does this What is their
mean?
capability for
this factor?
What does this
mean?
Johnsonville
No specific
information
was available.
The package
was vacuum
sealed
No specific
information
was available.
The package
was vacuum
sealed
No specific
information
was available.
The package
was vacuum
sealed
He wants to
assure his
customers that
the company
has the best
reputation in
the industry
Instructions
inside
package; no
sell-by date
Able to
provide
several low
cost specialty
sausage.
They can
compete on
a lower cost
basis.
They have
high ability
for
improvement.
They have
variety of
innovative
product line
They are
known as a
market
leader.
This is an
advantage for
brand
recognition.
Only
instructions
on package
and sell-by
date.
Produces a
few varieties
of sausage in
the local
market.
They are
locally
known in the
Memphis
market.
They have an
advantage
over
Guiseppe’s.
Capable of
providing
variety of
low cost
sausage.
To market his
sausages, get
some new
products out
for
advertisement
King Cotton’s
strategic plan
is to improve
the product
Dino’s should
improve the
products he
sold
No
instructions
on package;
no sell-by
date
Focus is
local a
direct
competitor
of
Guiseppe’s
Does not
offer
specialty
sausage
varieties.
He wants to
make the
product better.
Image is that
of a low cost
alternative
Does not
directly
compete in the
specialty
segment.
The product
is vacuumsealed.
Instructions
and date are
on package.
He followed
high
standard set
of
procedures
Guiseppe’s
produce 80
different
varieties of
sausage in
small
volumes
Smaller
companies
offer a
smaller
volume with
a wide
variety of
products
Guiseppe’s
main objective
is to improve
the product.
Guiseppe’s
concentrates
on improving,
other
companies’
primary
products and
making them
better.
They have a
good
reputation
with local
buyers.
If they can
become
available in
more outlets
they will gain
market
position.
Word of
mouth will
spread.
Dino’s
King Cotton
Guiseppe’s
Original Sausage
Company
19
Jimmy Dean
No specific
information
was available
No
instructions
on package;
no sell-by
date
Jimmy Dean
was able to
produce on a
much larger
scale.
Bryan
No specific
information
was available
No
instructions
on package;
no sell-by
date
Bryan was
able to offer
large scale,
high priced
sausages,
bratwurst and
kielbasa.
Offering
smoked,
beef, polska,
and Cajun.
Larger
companies
concentrated
on fewer
varieties and
a larger
volume of
sales per
variety.
A much
larger
selection for
the diverse
consumer.
Jimmy Dean
uses different
lines of dinner
sausages to
empower
other
competitors
Bryan
advertise, they
want to
develop
innovative
products and
to become
national
They utilize
the
best/cheapest
suppliers
available in
the market to
make better
product for the
consumer.
They want to
actively get
the name out
there.
Has all ready
achieved this.
This is helping
their market
position.
Has all ready
achieved this.
This is helping
their market
position.
20
John Morrell
No specific
information
was available
Only
instructions
on package
and sell-by
date.
Limited
variety,
offering two
types of
skinless
sausage.
John Morrell
is the leader in
low cost and
developing
innovative
products
They need to
come out with
more products
Has all ready
achieved this.
This is helping
their market
position.
No
instructions
on package
Only sell-by
date.
John Morrell
is able to
produce on a
small
volume. But
offers
skinless
varieties.
Mr. Turkey
produces on a
very limited
healthy
amount.
Mr. Turkey
No specific
information
was available
To produce
a healthy
low fat
turkey
product.
Mr. Turkey
should
innovate other
turkey
sausages
Has all ready
achieved this.
This is helping
their market
position.
Only
instructions
on package
and sell-by
date.
Healthy
Choice
produces on a
smaller
volume.
To produce
the
healthiest
quality all
natural
product
Healthy
choice
concentrates
on healthy
nutritional
sausages
Increasing
customer
demand and
using primary
products to
make them
better
Maybe adding
more low fat
dinner
sausages
Healthy Choice
No specific
information
was available
Has all ready
achieved this.
This is helping
their market
position.
21
a. Is this industry attractive and what are its prospects for above-average profitability (page 108)?
Criteria
Industry growth potential
Facts
The industry as a whole grew at a rate of 18.3% in
1996 and was experiencing growth in all segments.
Does competition permit adequate profit
potential?
Competition is tending to drive profit margins down in
this industry. The competitive strengths of the local
and national companies work to keep prices down.
Does competition lead to stronger or weaker
forces?
Competition leads to stronger forces because it will
force out the weak competitors. It is unlikely that the
industry participants will be able to boost profits to an
above average level.
Overall profit will increase due to the growth of the
specialty sausage market. The number of rivals
competing for this extra profit is likely to remain
steady.
The company is relatively weak when stacked against
all firms in the industry. They lack broker connections,
accurate costing, and long-term relationship with
buyers.
Will the prevailing driving forces positively
or negatively impact profit potential?
What is the company's relative competitive
potential in this industry?
What is the company's ability to capitalize on
its competitor's weaknesses?
Can the company defend against or is it
insulated from the factors that make this
industry unattractive?
Guiseppe’s would not seem capable of capitalizing on
the weaknesses of its competitors under current
conditions. The weakness they are most likely to
exploit is the lack of product breadth that the national
companies have in the Memphis market.
The company is not insulated from the low profit
margins in the specialty sausage industry. Guiseppe’s
would have a difficult time defending itself if one of its
many rivals more aggressively competed against
What does it mean?
Currently this industry is attractive due to its
high growth rate. There is currently too much
competition to expect to achieve above average
profitably.
Competition is straining the profit potential in
the specialty sausage industry. At the current
growth rates we expect companies to be
generate adequate profits. When growth stops
the majority of specialty sausage makers will
struggle to remain profitable.
Competitors will look to reduce prices as a way
to increase market share as growth rates decline.
This will continue to decrease profitability.
We see the overall profit in this industry
increasing. We expect the competitive situation
to decrease profit margins.
Guiseppe’s is currently at a competitive
disadvantage in the industry. Unless Guiseppe’s
can work to strengthen their relative position,
they will continue to struggle to achieve
profitability.
Guiseppe’s must focus their energies on
successfully promoting their ability to offer a
wide selection of specialty sausage. The
customer segments most likely to seek this
selection are the casinos and upscale restaurants.
Guiseppe’s cannot defend itself if necessary.
They must obtain accurate costing for the many
varieties of sausage they produce. They must
use this information to compete against their
22
Guiseppe’s.
How well does the company's capabilities
match the industry's KSF”s?
Guiseppe’s is very capable of competing on a quality
and breadth of product basis. They are beginning to
establish some brand recognition in the local market.
What are the future uncertainties and risks
for this industry?
Intense competition among the existing rivals could
lower the profit margins to a point that would make the
business unattractive to most companies. It is possible
that the next generation of consumers could become so
health conscious that they switch to healthier substitute
products.
The issues that is most affecting this industry, is the
high degree of competition among rival firms. This has
not yet hit the stage where companies begin to merge
or buy out competitors. We could expect this to
happen if industry growth rates decline.
Continued participation in the specialty sausage
industry should not hamper the ability of a firm to
compete in other industries.
What is the severity of the issue(s) or
problem(s) facing this industry?
If a corporation, will continue participation in
this industry positively or negatively impact
its ability to compete in other industries?
rivals. Guiseppe’s must make and sell only
sausage varieties that have a high enough profit
margin to overcome costs.
The company’s capabilities are well enough
suited to take advantage of the high growth of
the specialty sausage market. Unfortunately
their current strategy and customer base does
not allow for this to happen.
Competitive pressures will remain very high as
this industry continues to mature. The industry
must recognize any changes in consumer
preferences and take actions to offset these
changes if companies wish to remain profitable.
This industry should be able to remain
profitable as long as double-digit growth
remains. As this industry matures companies
will need to fight for their survival.
A strong specialty sausage company possessing
a good national distribution system with access
to the retail brokers, has the foundation
necessary to sell other products to the same
buyers.
III. Summary of External Factors
Which of these forces and factors are the most important to the corporation and to the industries in which it competes at the present time? Which
will be important in the future? Which represent opportunities and which represent threats to the corporation? Summarize using the following
matrix. Consider the external forces and factors for the corporate, business, functional and business levels of the organization.
External Forces and Factors
Opportunities
Strategic
Implications for
the company
Threats
Strategic
Implications for
the company
23
Societal
X
X
Regulatory
X
X
Dominant economic traits
X
X
Five forces
X
X
Political
Legal
Driving forces of change for the
industry and the industry’s
environment
X
X
X
X
Companies in the strongest and
weakest position
Rivals most likely moves
Key Success Factors
X
X
Industry Attractiveness and
prospects for profitability
X
X
24