Competitor Analyses

8/14/2019 Competitor Analyses

1/37

Industry Analysis

Industry structure determines the

competitive rules of the game as well as

strategies available to the firm

Competition in an industry is rooted in

its underlying economic structure

The state of competition depends onfive basic competitive forces


2/37

Competitive forces

Threat of new entrant

Intensity of rivalry among existing

competitors

Threat of substitution

Bargaining power of supplier

Bargaining power of buyers


3/37

Threat of Entry

New entrants bring new capacityThreat of entry depends on the barriers

to entry If barriers are high and the new comers

can expect sharp retaliation fromexisting competitors the threat of entry

is lowSix major sources of barriers to entry


4/37

Sources of barriers to entry

Economies of scale : refer to decline in

unit cost of a product as the absolute

volume per period increasesDeter entry by forcing the entrant to come

in at large scale

Units of multibusiness firm may be able to

reap economies similar to those of scale ifthey are able to share operations


5/37

Product differentiation

Means that established firms havebrand identification and customerloyalties

Force entrants to spend heavily toovercome customer loyalties

Important entry barrier in baby care

products, over the counter drugs,cosmetics, investment banking


6/37

Capital requirement

Capital is required not only for creatingproduction facilities but also for things likecustomer credit, inventories or covering up

start-up lossesThe need to invest large financial

resources in order to compete a barrier toentry

It limits the pool of likely entrants


7/37

Switching costs

One time cost facing the buyer of

switching from one suppliers product to

anothers

It may include employee training costs,

cost of new ancillary equipment, cost

and time in testing new source


8/37

Access to distribution

channels

New firm has to persuade the channels

to accept its product through price

breaks.

New food product manufacturer has tp

persuade the retailer to give it space via

promises of promotion


9/37

Cost disadvantage

independent of scale

Proprietary product technology

Favourable access to raw material

Favourable locationsGovernment subsidies

Learning curve


10/37

If cost decline with experience and experience

can be kept proprietary in an industry then this

effect leads to an entry barriers

Cost decline with experience seem to be themost significant in business involving a high

labour content performing intricate tasks.


11/37

Government Policy

Government can limit entry into

industries with such control as licensing

requirements and limit on access to raw

materials

Restrictions can stem from controls

such as air and water pollution

standards and product safety


12/37

Intensity of rivalry among

existing competitors

Takes the form of jockeying for position

using tactics like price competition,

advertising battle, product introduction

and increased customer service

Rivalry occurs because the one or more

competitors sees the opportunity to

improve position.


13/37

Reasons for rivalry

Numerous or equally balanced competitors

Slow industry growth

High fixed or storage costs

Lack of differentiation or switching costs Capacity augmented in large increments

Diverse competitors

High strategic stakes

High exit barriers


14/37

Sources of exit barriers

Specialized assets

Fixed costs of exit

Strategic relationshipEmotional barriers

Government and social restrictions


15/37

Barriers and profitability

Low, stablereturn

Low, riskyreturn

High, stablereturn

High, riskyreturns

Entry

barriers

Exit barriers

Low

High

Low High


16/37

Pressure from substitute

products

Place a ceiling on the prices firms in

industry can profitably charge


17/37

Bargaining power of buyers

Buyer group is concentrated or purchaseslarge volumes relative to seller sales

The product it purchases from the industry

represent a significant fraction of buyerscosts. The products are standard Few switching costs

Earns low profits Buyer has full information


18/37

Bargaining power of suppliers

Dominated by a few companiesThe industry is not important customer

of the supplier groupSupplier's product is an important input

to the buyers businessSuppliers products are differentiated or

it has build up switching costs credible threat of forward integration


19/37

Generic Competitive Strategies

Overall cost leadership

Differentiation

Focus


20/37

Overall cost leadership

Efficient-scale facilities

Pursuit of cost reductions

Tight cost and overhead controlCost minimization in areas like R& D,

sales force

Low cost position protects the firmagainst all five competitive forces


21/37

Require heavy capital investment,

aggressive pricing, start-up losses to

build market share


22/37

Differentiation

Differentiating the product or service

offering of the firm

Design or brand image. Technology,features, customer service, dealer

network


23/37

FocusFocusing on a particular buyer group,

segment of the product line, orgeographic market

Differentiation Overall costleadership

Focus

Industry wide

Particular

segment only

equ remen o os ea ers p


24/37

equ remen o os ea ers pstrategy

Commonly requiredskills Common organizationalrequirements

Capital investment,Process engineering

skills

Tight cost control,structured organizations

and responsibilities

Intense supervision pflabour. Productdesigned for ease ofmanufacture

Incentive based onmeeting strict quantitativetargets

Low cost distribution


25/37

Requirement of Differentiation

strategy

Commonly requiredskills

Common organizationalrequirements

Strong marketing

abilities, productengineering, creativeflair

Strong coordination

among function in R& D,product development andmarketing

Strong capability inresearch


26/37

Competitor Analysis


27/37

Components of Competitor

Analysis

What drives the competitor Future goals

Assumptions ( Held about itself and the industry)

What the competitor is doing and can do? Current strategy( How the business is currently

competing?)

Capabilities (Strength and weakness)


28/37

Future Goals

Allow predictions about whether or not

each competitor is satisfied with its

present position and financial results

How likely that competitor is to change

strategy and the vigor with which it will

react to outside events.


29/37

Diagnostic questions

What are the stated and unstated financial goals of thecompetitor

What is the competitors attitude towards risk?

What is the organizational structure?

What controls and incentive systems are in place?

What kinds of managers comprise the leadership

What are the current results and overall goal of theparent company

Why did the parent get into businessWhere does the corporate parent recruit from?


30/37

Portfolio analysis ( Growth/share matrix)

Star

Modest cash flow

Question Mark

Large negativecash flow

Cash Cow

Large positivecash flow

Dog

Modest cash flow

Growth

Relative market share

High

Low

High Low


31/37

Assumptions

The competitors assumptions about

itself

The competitors assumptions about theindustry and the other companies in it.

Examining assumptions can identify

biases or blind spots


32/37

Diagnostic questions

What does the competitor appear to believe about itsrelative position

Does the competitor have strong historical oremotional identification with particular products

Are there cultural, regional or national differences

What does the competitor appear to believe aboutfuture demand and about industry trends?


33/37

Capabilities

Capabilities will determine ability to

initiate or react to strategic moves and

to deal with environmental or industry

events that occur


34/37

Areas of Competitor strength and

weakness Products Dealers/distrbution

Marketing anmd selling

Operations

Research and engineering

Overall costs

Financial strength

General managerial ability

C bilit


35/37

Capability

Core capabilities

Ability to grow

Quick response capabilityAbility to adapt changes

Staying power

Th C tit R


36/37

The Competitor Response

Profile

Offensive movesSatisfaction with current positionsProbable moves

Strength and seriousness of moves

Defensive capabilityVulnerability

ProvocationEffectiveness of retaliation


37/37

Competitor's response profile

Is the competitor satisfied with its

current position

What likely moves or strategy shifts willcompetitor make?

Where is the competitor vulnerable?

What will provoke the greatest and mosteffective retaliation by the competitor

Competitor Analyses

Documents

Transcript of Competitor Analyses