Week 4 (Chapter 5) Flashcards
Industry analysis
Business research that focuses on the potential of an industry. It is industry level compared to firm level analysis of factors that affect performance.
- Helps to determine if the target market identified during the feasibility analysis is favorable for the new firm, product/service.
Firm-Level performance factors
Include a firm’s assets, products, culture, teamwork among its employees, reputation, resources and capabilities
Industry-Level performance factors
Include threat of new entrants, rivalry among existing firms, bargaining power of buyers, and related factors.
Studying industry trends
- Environmental trends
- Business trends
Industry attractiveness is largely about its profitability
Environmental trends
External factors: e.g. economic trends, social trends, technological advances, political and regulatory changes.
Business trends
Internal factors: other trends that impact an industry, e.g. are input costs going up or down.
Porter’s Five Forces: Industry Analysis
- Threat of new entrants (barriers)
- Bargaining power of buyers
- Threats of substitutes
- Bargaining power of suppliers
These four forces all influence the fifth force, which is continuous:
5. Rivalry among existing competitors
Porter’s Five Forces (explanation)
Each of Peter’s five forces affects the average rate of return for the firms in an industry by applying pressure on industry profitability.
Entrepreneurs that create new industries and niche markets can benefit from additional barriers to entry that can reduce the threats from new entrants
Competitor analysis
A detailed evaluation of a firm’s competitors. Helps a firm to understand the positions of its major competitors and the opportunities that are available.
Knowing all your competitors may not be possible, but you need to know how to differentiate your product/service in a way that customers are willing to switch to/buy your product.
Competitive intelligence
The information that is gathered by a firm to learn about its competitors.
Direct competitors
Businesses offering identical or similar products
Indirect competitors
Businesses offering close substitute products
Future competitors
Businesses that are not yet direct or indirect competitors but could be at any time.
Fragmented industry
An industry that is characterized by a large number of firms od approximately equal size.
Mature industry
An industry that is experiencing slow or no increase in demand, has numerous repeat (rather than new) customers, and has limited product innovation.
