Industry Analysis Flashcards
What is the guiding question for industry analysis?
Why do some companies outperform others in a given industry?
What is an industry?
A group of firms that face the same suppliers and buyers
What does an industry analysis allow?
Identify the industry’s profit potential
What is a strategic position?
The firm’s ability to create value for customers while containing costs
What is the Industry Value Chain?
a chain of activities/steps that link raw materials through to the final product
What does each activity in the industry value chain have?
each activity has revenues, costs, profits, and each stage represents an industry on its own
What is the objective for each step of the value chain?
To incrementally add value
What are the 4 aspects that represent opportunities for growth in an industry?
- Growth -> historical and projected
- Worth -> actual or estimated $ value of the industry
- Structure -> relative market share and structure
- Number of firms -> total (or approx.) number of active firms
What are the 5 competitive forces industry members are facing?
- Rival sellers
- Potential new entrants
- Substitute products
- Supplier bargaining power
- Customer bargaining power
What defines an attractive industry?
High profit potential and weak competitive forces
What is rivalry?
Competition that exists among firms in the industry for market share
When is there high rivalry? (5)
- Buyerdemand is growing or slowly declining
- Low cost to switch brands
- Industry products are less differentiated
- Number of competitors is increasing (size + strength)
- High exit barriers
What are new entrants?
new firms outside the industry that enter and can decrease industry profitability
When is there a high threat of new entrants?
When there are low barriers to entry
Name new entrant barriers to entry
- Economies of scale
- Experience and learning curve effects
- Unique cost advantages of industry incumbents
- Strong brand preferences + loyalty
- High capital requirements
- Network of distributors
- Govt policies
What are substitute products?
Products from outside the industry that can provide similar benefits or perform the same function
When is there high substitution power?
- Ready availability of substitutes
- Pricing, quality, and performance is comparable or better
- Switching costs that buyers incur
Signs that substitute competition is strong (3)
- Growth in sales
- Adding output capacity
- Increased profitability
When is there high supplier power?
- No ready availability of supplier products
- Supplier products are differentiated
- Criticality of supplier products as industry inputs
- Little chance for backward integration
- Buyers’ costs of switching among suppliers
When is there high buyer power?
- Low buyer costs for switching to competing sellers
- Degree to which industry products are commoditized
- # of buyers relative to sellers
- Backward integration of buyers into sellers’ industry
What is a strategic group?
Cluster of industry rivals that have similar competitive approaches and market positions
What is a strategic group map
Used to assess the market positions of key competitors
Political factors
Political describes the influence government bodies can have on firms
Economic factors
Economic growth rates, interest rates, employment levels, price stability, currency rates
Social factors
Sociocultural factors capture a society’s cultures, norms, and values
Technological factors
Technological factors capture the application of knowledge to create new processes/products
Ecological factors
Ecological factors concern a firm’s regard for environmental issues: natural environment, global warming, and sustainable economic growth
Legal factors
Legal factors capture the official outcomes of the political processes that manifest themselves in law, mandates, regulations, and court decisions
