Chapter 8
Industry and Competitor
Analysis
By
T. Norah Al Jasser
Chapter Objectives
1.
2.
3.
4.
5.
6.
Industry analysis.
Five competitive forces.
Barriers to entry”.
Competitor analysis.
Three groups of competitors a new firm will face.
Information about competitors.
What is Industry Analysis?
• Industry
– An industry is a group of firms producing similar products
or services, such as airlines, fitness drinks, furniture, or
electronics.
• Industry Analysis
– Is a business research that focuses on the potential of an
industry.
Two Key Questions
When studying an industry, an entrepreneur must answer
two questions before pursuing the idea of starting a firm.
Question 1: Is the industry accessible?
Question 2:Does the industry contain markets that
are ready for innovation or not?
The Five Competitive Forces Model
• Five Forces Model:
– A framework for understanding the structure of an industry.
– Composed of the forces that determine industry
profitability.
– Help determine the average rate of return for the firms in an
industry.
The Five Competitive Forces Model
Threat of Substitutes
• Threat of Substitutes
– The price that consumers are willing to pay for a product
depends in part on the availability of substitute products.
IF
IF
Few / No Substitute
Close Substitute exist
Difficult to
switch when
Price goes up
customers
might stop
buying when
Price goes up)
– Firms in an industry always offer their customers features
to reduce the chance of changing to a substitute product.
Example
• A customer could easily get
a cup of coffee cheaper at
one of Starbuck’s competitors.
• To decrease the chances of
this, Starbucks offers highquality fresh coffee, good
service, and a satisfying
feeling.
• Starbucks has therefore
reduced the threat of
substitutes.
Threat of New Entrants
• Threat of New Entrants
– If the firms in an industry are highly profitable, the industry
becomes more attractive to new entrants.
– The competition in the industry will increase unless
something is done to stop this.
– Firms in an industry try to keep the number of new entrants
low by creating barriers to entry..
• A Barrier to entry: is a condition that
discourage a new firm from entering an
industry.
Examples of barriers to entry :
1.
2.
3.
4.
5.
Economic scale .
Product differentiation.
Capital requirements.
Access to distribution channels.
Government and legal barriers.
Rivalry Among Existing Firms
Rivalry (competition) Among Existing Firms:
– In most industries, the major determinant of industry
profitability is the level of competition among existing
firms.
Factors that determine the intensity of the competition:
1. Number and balance of competitors: The more competitors there are, the more one
or more will try to gain customers by cutting its price.
2. Degree of difference between products: The degree to which products differ from
the others affects industry rivalry.
3. Growth rate of an industry :The competition among firms in a slow-growth industry
is stronger than among those in fast-growth industries.
4. Level of fixed costs :Firms that have high fixed costs must sell a higher amount of
their product to reach the break-even point than firms with low fixed costs.
Bargaining Power of Suppliers
• Bargaining Power of Suppliers
– Suppliers can affect the profitability of the industries by
raising prices or reducing the quality of the components
they provide.
Factors that have an impact on the ability of suppliers to
pressure on buyers:
1. Supplier concentration
2. changing from one supplier to another costs.
3. Attractiveness of substitutes.
Bargaining Power of Buyers
• Bargaining Power of Buyers
– Buyers can affect the profitability of the industries by
negotiating prices or demanding increases in quality.
Factors that have an impact on the ability of buyers to
pressure on suppliers :
1. Buyer group concentration
2. Buyer’s costs.
3. Degree of standardization of supplier’s products
Application of the Five Forced Model
Assessing Industry Attractiveness Using the Five Forces Model
Identifying Competitors
Types of Competitors
5-15
Sources of Competitive Intelligence
ways to obtain information about competitors
• Attend conferences and trade shows.
• Purchase competitor’s products.
• Study competitors’ Web sites.
• Set up Google and Yahoo! e-mail alerts.
• Read industry-related books, magazines, and Web sites.
• Talk to customers about what motivated them to buy your
product rather than your competitor’s product.
5-16