Industry definition and analysis

Question 1

What is the Objectives of Industry Analysis

Answer 1

• To understand how industry structure drives competition, which determines the level of industry profitability
• To assess industry attractiveness
• To use evidence on changes in industry structure to forecast future
  profitability
• To formulate strategies to change industry structure to improve industry profitability
• To identify Key Success Factors

Question 2

What determines the if the industry profitability

Answer 2

1. The value of the product to customers
2. The intensity of competition (what type of market)
3. Relative bargaining power at different stages of the value chain

Question 3

What is the relationship between products?

Answer 3

• Substitute goods
  – The cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases.
• Complementary goods
  – The cross elasticity of demand for
  complementary goods is negative.
• Unrelated goods
  – The cross-elasticity of demand = zero.

Question 4

Name porters five forces

Answer 4

Potential entrants, buyers, substitutes & suppliers

Question 5

Problems with the five forces

Answer 5

• Defining the ‘right’ industry
• Determining whether industries are converging
• Identifying complementary products – missing in Michael Porter’s original conceptualization

Question 6

How to apply the five forces

Answer 6

1. Forecasting Industry Profitability
   o If we can forecast changes in industry structure, we can predict
   likely impact on competition and profitability
2. Strategic Planning
   o Once we know which structural features of the industry support
   profitability and which depress profitability, we can choose a favourable positioning within the industry
3. Strategies to Improve Industry Profitability
   o Which of the structural variables that are depressing
   profitability can we change by individual or collective strategies?

Question 7

What is a strategic gap?

Answer 7

One way to find ways to differentiate is to identify a strategic gap

A strategic gap is a opportunity in the competitive environment that is not being fully exploited by competitors.

Question 8

What is strategic groups?

Answer 8

Strategic groups are organisations within an industry with similar strategic characteristics, following similar strategies or competing on similar bases.

Question 9

What is market segments?

Answer 9

A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the
market.
Example: DINK

Question 10

What is strategic customer?

Answer 10

A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased.