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Sectoral Analysis – Javier Ruiz de Ojeda

SECTORAL ANALYSIS Javier Ruiz de Ojeda

EXECUTIVE MBA in Sustainable Economy

Sectoral Analysis – Javier Ruiz de Ojeda 2

Sectoral Analysis

• Sectoral Analysis in a business is a previous step leading to an

informed strategic decission making process.

•As strategic, these decisions will affect long term development

and survival of any company.

• Many of these decisions have an implication of sustainability,

which is needed to be competitive when:

Venturing into a new business

Entering a new country

Launching new product or services

Re-positioning

Merging or Acquiring businesses

INTRODUCTION


Strategic Marketing Bases

In a Company, Strategic Marketing is needed to be able to respond to

the following questions :

In which Markets / Segments are we going to have business

operations? (many, few, coverage...)

What Timing ? (pioneers, followers, delayed)

What Attitude facing competitors ? (¿coopetition?)

What Strategy and Basic Competitive Positioning ?

What Marketing Mix Strategy ?


In which Markets/Segments are we going to be?

Implies to choose where to operate

1. Geographical area

2. Industry (sector)

3. Segment

Basic Criteria: Market attractiveness (size, growth, profitability…)

Competitive Advantage (sinergy, strengths, key factors)

Many parameters to be handled:

Sales Build-Up (Lorenz’s curve)

Extension (market share/ coverage)

Competitive Intensity

Segment diversity

STRATEGIC MARKETING BASES


What Timing ?

PIONEER: The innovator… Can “modulate” consumer preferences

Calls the attention immediately (customer, distributor)

“Come down” earlier on the experience curve

Patents, protects and absorbs resources

FOLLOWER: But the ones who follow… Surf the waves (open market, information...)

Learn from failures (and marks) of the innovator

Copy as much as they can

Long Term vs Short Term (sustainability)



Attitude facing Competitors ?

At strategic level, the basic unit of analysis is the strategic segment /

strategic group.

Globalisation leads to a worldwide logic of strategic alliances (vertical /

horizontal)

Alliances are always in the arsenal of strategists. Also: long term

partnership with suppliers (competitive subcontracting , risk sharing subcontracting…),

Export Cooperatives , Joint Ventures...

¿ Competition / Collaboration / Coopetition ?

Sustainability as a Competitive Advantage



1.- Concept of Industry (Sector)

Sectoral Analysis

© EM/JRO Análisis Sectorial marzo 2010


SECTOR – COMPETITIVE ANALYSIS

Framework Analysis

Scope

What Breed? What evolutionary Place?

Modes of Behaviour

What Phase of Company Development - CDI

Environment and Customer Development Phases

• Life Cycle

• HDI



Sector Structure Analysis

Competitive Forces

Concentration (concentrated/fragmented)

Life Cycle (emerging/growing/maturity/decline)

Integration level

Importance (non basic/ basic/ strategic)

Internationalisation level


2.- Analysis, Measurement and Segmentation

Sectoral Analysis


ANALYSIS & SEGMENTATION OF MARKETS

General Process Product - Market

To Define the Market and to Measure it

To Segment it

To Describe Segments

To analyse Critical Factors of each Segment

To analyse Positioning of our Products and Company

To know the Acquisition Process



Segmentation - Definition

To better adapt products & services to existing

and future demand

To Segment is to split the market in subsets where their elements

are most similar amongst them and different from the other sets.

Need to define precisely each market segment needs

Deep knowledge of the consumer / user

Effective allocation of resources




General Process: Mass consumption

Unique, standard project

Satisfaction of basic needs

Factors Definition / Positioning

Core market saturation

Interest for minorities

A deeper penetration of markets is achieved by adapting products &

services to the needs of the demand, (fidelisation growth, larger buying

intensity, growth of effective buyers…)

Segmentation vs Differentiation

Segmentation Process ANALYSIS & SEGMENTATION OF MARKETS


Segmentation Factors

Geographical

Demographics Consumer Markets

Economics & Services Development

Psychological/Socials

Geográficos

Tipo usuario / Frecuencia Industrial Markets

Desarrollo & Services Precio



Segmentation Aspects

ø Viable segments are not always are found.

ø Segmentation by itself is not always profitable.

ø It is necessary to repeat analysis periodically.

ø In principle, segmentation is against economy of scale.

ø One company can cease to be sustainable in a segment or

place, and start being it in another place.



4.- Determine Competitive Domain

Sectoral Analysis



Competition Range

“Expanded” Concept of Competition

Competition Company to Company

Competition Product to Product

Competitive Advantages of Nations


Competition within a Sector

New Entrants

Suppliers Buyers

Existing

Competitors

Sustitutives


ME

Competition is not a matter of chance, but the result of the Interaction of

the “Competitive Forces”:



Competitive forces: • new entrants

• existing competitors

• sustitutives

• buyers

• suppliers

• Competition operates continuously and is balanced by the pressure that

investors apply.

• Competition will not allow their returns to drop below a certain level, which

will depend on the perceived risk level in the business.

• If profits fall below this threshold, investors will take their capital elsewhere

in search of better investment opportunities.

Competition within a Sector

Objective is to find a position where we can defend our

company from the pressure of the competitive forces or

even leaning them in our favor



New entrants

The entry of new companies in the sector will bring increased

resources and capability and, in principle, will involve an attempt to

obtain participation in the market at the cost of those already in it.

It may force Prices down and/or Quality up

The possibility of entering a sector basically depends on two

factors:

1) The capacity for reaction of existing companies (through

technology, finance, production, etc.)

2) Any other entry barriers

Economies of scale

Product/service differentiation

Capital requirements

The cost of change

Access to retail channels

Other factors, including patents, privileged access to raw materials, location,

government aid,


Rivalry from Existing Competitors SECTOR – COMPETITIVE ANALYSIS

Competition occurs when one or more competitors feel pressured

or note an opportunity for improvement.

The degree of rivalry will depend on a series of structural factors,

including :

Large number of competitors, or very balanced competitors

Slow market growth

High overheads or storage costs

Low price differentiation

Strategic interests

Exit barriers (specialised assets, fixed exit costs, social restrictions or emotional barriers)



Pressure from Substitute Products

The price/quality ratio of substitute products may limits price levels

in their sector.

Substitute products can be manufactured by companies that

belong to the sector or by others from outside it, and that is a

potentially risky situation.

Companies in the sector may react all together, or they may not

react at all, or they may meet customer demands by adapting the

product.



Negotiating Power of Buyers

Purchasers / Buyers may force prices down and quality up,

affecting profits for the sector

Their power will increase if:

They are concentrated, or they buy large relative volumes

if Raw materials are costly

There is no product differentiation

The cost of changing supplier is low

There is no threat of integration

They have complete information

if Quality is not an important consideration



Negotiating Power of Suppliers

Powerful suppliers may threaten to raise prices and/or to

reduce quality. Companies in the sector may see a fall in their

profits if they are not able to pass on such increased prices to

the end consumer.

Their power will increase if :

They are more concentrated than the sector which purchases

They are not forced to compete with substitute products

The purchaser is not an important customer

The product is important for the purchaser

The product is differentiated

They represent a threat of integration


INTERNAL ANALYSIS

Considered by many authors to be a basic prime tool for strategic diagnosis.

It aims to build up what is called a strategic profile: a self-evaluation,

analysing the company in relation to its main competitors in order to find

aspects in which the company is better than others (strong points) and in

which it is worse (weak points).

Procedure:

Identification of key bussines’ success factors.

Assessment of the relative company capabilities

Comparison with the competition and leader

Graph drawing (strategic profile)

Evolution (historical / future projection)

It is esential to be impartial when assessing both our own

capabilities and those of our competitors

Strategic Profile: Classic method


INTERNAL ANALYSIS

Critical Factors

Economic and Productive Structure:

Sector/Life Cycle/Size/Localization

Financial position

Quantity/quality of personnel

Marketing capability

R&D capability

Operations capability

Management Styles

Sectoral Analysis – Javier Ruiz de Ojeda 27 © EM/JRO Análisis Sectorial marzo 2010

Added Value Chain (1): Concept

Value chain is the way in which the company gradually adds value

to the products and services it sells, as it completes the successive

stages involved in converting raw materials into a finished product

and then places this in the hands of the end consumer

Infrastructure

Human Resources management

Technological support

Supplies

Input

logistics

Output

logistics

Production /

Operations

Marketing

& Sales

After-sales

services

INTERNAL ANALYSIS


It allows for analysis “from outside in”: How efficient our company is

at each of the steps of the value chain, comparing it with the sector

standards?

It allows for identification of the aspects that are most relevant from

the point of view of competition, relegating others

It provides an overall view of the company, making explicit the

relations between areas

It allows us to see our strengths and weaknesses against the

importance of each of the steps (the strategic centre of gravity and key

factors for success).

It allows us to measure our resources and what options we have to

relocating them.

Added Value Chain (2): Advantages INTERNAL ANALYSIS


SECTORAL ANALYSIS

Company strengths

and weaknesses

Sectoral opportunities

and threats

Organisation, and

Personal values of

key managers

Social expectations

Company

INTERNAL

factors

Company

EXTERNAL

factors

Competitive

Strategy

Strategic Analysis Summary


Conclusions drawn from the cross-feed analysis provide an

assessment of the business, as well as the suggested areas

for improvement

SWOT Analysis (DAFO) SECTORAL ANALYSIS

Underpinning factors ( Image, quality...)

Areas to be improved (Customer relationship,

assets utilization…)

STRENGHTS THREATS

WEAKNESSES OPPORTUNITIES

ENVIRONMENT COMPANY Problems posed by

the environment

and the company (new prodcuts, etc)

Environmental

Changes favouring (improved economy,...)


To Compete Internationally

Independent Competitive Dependent

Position

Small Companies Large Companies

Multi-domestic Global International

Competition

Globalization Levels can differ by Sector, Segment , Vertical

Integration steps or Country Groups

SECTORAL ANALYSIS


Globalisation

Productivity is key for success, and the best indicator for

competitiveness (€ per hour, or per invested €)

Competition makes it necessary to constantly improve products and

processes in terms of added value and at planetary level. Management

of the added value chain becomes critical. Technologies and products

are moved around the world in line with added value and unit costs.

No nation can compete in everything. International commerce forces to

a continuous improvement of competitiveness and/or product and

technology management according to added value.

Globalization levels vary substantially, depending on level of income,

type of product/service, consumer age, geographical area, etc.

Sustainability importance is not perceived equal (HDIs, CDIs…)

SECTORAL ANALYSIS


5.- Forecast and Strategic Analysis

Sectoral Analysis


STRATEGIC ANALYSIS

Imagine the Likely Future of the Company,

and Get Prepared for It !

Strategic Analysis Summary

Products, techniques and technologies have an age and a

certain life expentancy, that differs from country to country,

depending on the social and economical development.

Tools to make a guesstimate:

Past trends and future projections

Comparison with neighbour and similar countries

Relations and similarities with other products

Analysis of the likely alternatives

Changes in consumption structure

Factors opposing or dragging the change


Scenario Building

Select factors & events that can have an influence to

a large extent on our future.

It is common to define scenarios with three measures of

probability (the most probable, the pessimistic, the optimistic)

Thus, three Basic Frameworks for future scenarios are built

This permits to frame the range of key variables.


STRATEGIC ANALYSIS


Check List (I) STRATEGIC ANALYSIS

Previous Considerations

– Is it true?

– What is the General Strategic Objective of the BU?

– Is the business running well?

– Is it a Gorilla?

– What is the Development Phase of the Company?

– Do they have a good Product ?

– What are the Core Competences?

– Is there a need to re-define the General Strategic Objective?

– Which strategic guidelines should be followed?

new customer?

new product?

extend product?

new country?

new company?


Check List (II) STRATEGIC ANALYSIS

Market and Segments

– Do we use available market Information (own and external) ?

– What niche markets exist in our influence area ?

– What product/services are specially important ?

– Where do we have a better competitive position in front of

competition ? (brand A?, product B1?...)

– Can we take advantages from our own development ?

– Do we know our market situation or share ?

– Where are the opportunities for growth ?

– In what market segments do we want to be in the future ?

– Are we conscious of behaviour and life styles of the customers

within our influence area ?


Check List (III) STRATEGIC ANALYSIS

Positioning

– What is our competitive position in the market ?

• Facing the customers

• Facint the competitors

– What are our strenghts ?

• Products

• Prices

• Image and quality of service

• Communication, promotion and sales force

– What can be enhanced ?

– How can we implement services which could be difficult to be copied

by competitors, specially different and attactive to our customers ?

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