Industry Analysis Flashcards
What is an Industry?
A group of firms producing products and services that are essentially the same.
What is a Market?
A group of customers for specific products or services that are essentially the same.
What is a Sector?
A broad industry group or group of markets, especially in the public sector.
What does Porter’s Five Forces Framework do?
Identifies the attractiveness of an industry.
What are Porter’s Five Forces?
- The threat of entry
- The threat of substitutes
- The bargaining power of buyers
- The bargaining power of suppliers
- The extent of rivalry between competitors
What do the Five Forces focus on?
The way that these forces are operating and how they can be used for competitive advantage.
In the two-stage view of PFF, what is the Horizontal View?
Bargaining power and Scarcity -> Intensity of rivalry -> Bargaining power of customers
In the two-stage view of PFF, what is the Vertical View?
Threat of entrants <-> Intensity of rivalry <-> Threat of substitutes
True or False: The focus of PFF is at the Corporate Level.
False - The focus here is at the SBU Level.
What does the degree of rivalry depend upon?
- Competitor concentration and balance
- Industry growth rate
- High fixed costs
- High exit barriers
- Low differentiation
What are Barriers to Entry?
The factors that need to be overcome by new entrants if they are to compete successfully.
What are the main barriers to entry?
- Economies of scale / experience / network affects
- Access to supply and distribution channels
- Capital requirements
- Differentiation and market penetration costs
- Legislation or government action
- Expected retaliation from competitors
- Incumbency advantages
What is the Threat of Substitutes?
Products or services that offer a similar benefit, but have a different nature.
When will customers switch to substitutes?
- The price/performance ratio of the substitute is superior
- The substitute benefits from an innovation that improves customer satisfaction
- Substitutes come from outside the incumbent’s industry
What are Buyers to a business?
Buyers are immediate customers of an organisation, not necessarily the ultimate consumers.
When is Buyer Power likely to be high?
- Buyers are concentrated
- Buyers have low switching costs
- Buyers can supply their own inputs
What are Suppliers to a business?
Those who provide an organisation with what they need to produce their products / services.
When is Supplier power likely to be high?
- Suppliers are concentrated or limited
- Suppliers provide a specialist or rare input
- Switching costs are high
- Suppliers can integrate forwards
What is the first step of Industry Analysis?
Define the industry clearly.
What is the second step of Industry Analysis?
Identify the actors of each of the five forces and define groups within them.
What is the third step of Industry Analysis?
Determine the underlying factors of and total strength of each force.
What is the fourth step of Industry Analysis?
Assess the overall industry structure and attractiveness.
What is the fifth step of Industry Analysis?
Assess recent and expected changes for each force.
What is the final step of Industry Analysis?
Determine how to position the business in relation to the five forces.
