Industry & Sector Analysis Flashcards
Determinants of Industry Profitability:
- Value of product/service to customers
- Intensity of competition among suppliers of product/services
- Relative bargaining power of industry members relative to suppliers & buyers
What are Porter’s 5 Forces of Competition Framework?
Competition rivalry
Supplier power
Buyer power
Threat of substitution
Threat of new entry
What is Rivalry Between Established Competitors?
Extent to which industry is depressed by aggressive price competition.
What is Rivalry Between Established Competitors Dependent on?
- Product differentiation
- Excess capacity
- Exit barriers
- Cost conditions
What is Threat of Entry?
Entrants’ threat to industry profitability dependent on high barriers to entry.
What are Examples of High Barriers to Entry?
- Capital requirements
- EoS
- Absolute cost advantage
- Product differentiation
- Access to supplier/distribution channels
- Legislation/gov action
- Expected retaliation
What are Threats of Substitutes? Why Would Customers Switch to Substitute?
- Price/performance ratio of substitute is superior
- Substitute benefits from an innovation that improves customer satisfaction
- Extra-industry effects.
What is Bargaining Power of Buyers?
Buyers are organisations immediate customers, not always ultimate ones.
Powerful buyers can demand cheap prices.
Determinants of Higher Buyer Power:
- Buyers are concentrated (few of them)
- Buyers have low switching costs
- Buyers can supply their own inputs (backward vertical integration)
- Low buyer profits and impact on quality.
What is Bargaining Power of Suppliers?
Those who supply organisation with their needs to produce product/service
Powerful suppliers can reduce organisations profits.
Determinants of Higher Supplier Power:
- Suppliers are concentrated
- Suppliers provide a specialist/rare input
- High switching costs
- Supplier can integrate forwards
What are the Implications of the 5 Forces Analysis?
Which industries to enter/leave (attractiveness of industries).
Managers identify strategic position to exploit forces & identify strategic position.
What are Strategic Groups?
Organisations within an industry with similar strategic characteristics, strategies or compete on similar bases.
Characteristics for Identifying Strategic Groups:
Scope Activities:
* Extent of product range
* Extent of geographical coverage
* No. of segments served
* Distribution channels used
Resource commitment:
* Product/service quality
* Extent of vertical integration
* Size of organisation and marketing effort
* R&D spending and technological leadership
What are the Uses of Strategic Group Analysis?
Barriers overcome to enter more attractive groups.
Barriers built to defend attractive positions.
Enables focus on direct competitors within a strategic group rather than the whole industry
