INDUSTRY AND COMPETITOR ANALYSIS
Industry Analysis
is business research that focuses on the potential of an industry. Industry analysis is useful for a new venture to think about its position at both the company level and the product or service level. Entrepreneurs must understand the industry which they plan to enter and in which they intend to compete. It's also important to know that some industries are simply more attractive than others in terms of their annual growth rate and other factors.
There are two main components of "industry trend" that firms should study, Environmental trends that include economic trends, social trends, technological advances, and political and regulatory changes ; also business trends that include other business-related trends that aren't environmental trends but are important to recognize and understand.
The Five Forces Model
is a framework entrepreneurs use to understand an industry's structure.
- Threat of Substitutes
When threat of substitutes is low, it means that products or services from other industries can't easily serve as substitutes for the products or services being made. Firms in an industry often offer their customers amenities to reduce the likelihood the'll switch to a substitute product.
- Threat of New Entrants
Industries are more attractive when the threat of entry is low. Competitors can't easily enter the industry and successfully copy what the industry incumbents are doing to generate profits. A barrier to entry is a condition that creates a disincentive for a new firm to enter an industry. The ideal barrier to entry is a patent, trademark, or copyright, which prevents another firm from duplicating what the start-up is doing. There are six major source of barriers to entry :
↦ Economics of scale
↦ Product differentiation
↦ Capital requirements
↦ Cost advantages independent of size
↦ Access to distribution channels
↦ Government and legal barriers
- Rivalry Among Existing Firms
In most industries, the major determinant of industry profitability is the level of competition among the firms already competing in the industry. Some industries are fiercely competitive to the point where prices are pushed below the level of costs. There are four primary factors that determine the nature and intensity of the rivalry among existing firms in an industry :
↳ Number and balance of competitors
↳ Degree of difference between products
↳ Growth rate of an industry
↳ Level of fixed costs
- Bargaining Power of Suppliers
In some cases, suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide. If the suppliers are powerful relative to the firms in the industry to which they sell, industry profitability can suffer. There are several factors have an impact on the ability of suppliers to exert pressure on buyers an suppress the profitability of the industries they serve :
↠ Supplier concentration
↠ Switching costs
↠ Attractiveness of substitutes
↠ Threat of forward integration
- Bargaining Power of Buyers
Buyers can suppress the profitability of the industries from which they purchase by demanding price concessions or increases in quality. There are several factors that affect buyers' ability to exert pressure on suppliers and suppress the profitability of the industries from which they buy :
↷ Buyer group concentration
↷ Buyer's costs
↷ Degree of standardization of supplier's products
↷ Threat of backward integration
When threat of substitutes is low, it means that products or services from other industries can't easily serve as substitutes for the products or services being made. Firms in an industry often offer their customers amenities to reduce the likelihood the'll switch to a substitute product.
Industries are more attractive when the threat of entry is low. Competitors can't easily enter the industry and successfully copy what the industry incumbents are doing to generate profits. A barrier to entry is a condition that creates a disincentive for a new firm to enter an industry. The ideal barrier to entry is a patent, trademark, or copyright, which prevents another firm from duplicating what the start-up is doing. There are six major source of barriers to entry :
↦ Economics of scale↦ Product differentiation
↦ Capital requirements
↦ Cost advantages independent of size
↦ Access to distribution channels
↦ Government and legal barriers
In most industries, the major determinant of industry profitability is the level of competition among the firms already competing in the industry. Some industries are fiercely competitive to the point where prices are pushed below the level of costs. There are four primary factors that determine the nature and intensity of the rivalry among existing firms in an industry :
↳ Number and balance of competitors↳ Degree of difference between products
↳ Growth rate of an industry
↳ Level of fixed costs
In some cases, suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide. If the suppliers are powerful relative to the firms in the industry to which they sell, industry profitability can suffer. There are several factors have an impact on the ability of suppliers to exert pressure on buyers an suppress the profitability of the industries they serve :
↠ Supplier concentration↠ Switching costs
↠ Attractiveness of substitutes
↠ Threat of forward integration
Buyers can suppress the profitability of the industries from which they purchase by demanding price concessions or increases in quality. There are several factors that affect buyers' ability to exert pressure on suppliers and suppress the profitability of the industries from which they buy :
↷ Buyer group concentration↷ Buyer's costs
↷ Degree of standardization of supplier's products
↷ Threat of backward integration
The Value of the Five Forces Model
➼ can be used to assess the attractiveness of an industry or a specific position within an industry by determining the level of threat to industry profitability or each of the forces.
➼ to help determine whether it should enter an industry.
Entering an industry with a fresh brand, innovative ideas, and a world-class management team and performing better than the industry incumbents increases the likelihood a new venture will be successful.
Industry Types and the Opportunities They Offer
- Emerging IndustriesAn emerging industry is a new industry in which standard operating procedures have yet to be developed. The firm that pioneers of an emerging industry often captures a first-mover advantage.
- Fragmented IndustriesA fragmented industry is one that is characterized by a large number of firms of approximately equal size. The primary opportunity for start-ups in fragmented industries is to consolidate the industry and establish industry leadership as a result of doing so. Geographic roll-up strategy is the most common way to do this.
- Mature IndustriesA mature industry is an industry that is experiencing slow or no increase in demand, has numerous repeat customers, and has limited product innovation. Entrepreneurs introduce new product innovations to mature industries to convince them that nothing new was possible in their industries.
- Declining IndustriesA declining industry is an industry or a part of an industry that is experiencing a reduction in demand. There are three different strategies in declining industries :⇾ adopt a leadership strategy⇾ pursue a niche strategy⇾ cost reduction strategy
- Global IndustriesA global industry is an industry that is experiencing significant international sales. Two most common strategies pursued by firms in global industries are multidomestic strategy (usually for food company) and global strategy (firms that sell more universal products, like athletic shoes). The key to achieving success is gaining a clear understanding of customers' needs an interests in each market in which the firm intends to compete.
Competitor Analysis
is a detailed analysis of a firm's competition. It helps a firm understand the positions of its major competitors and the opportunities that are available to obtain a competitive advantage in one or more areas. There are number of ways a firm can ethically obtain the information it seeks to have about its competitors :⤳ attending conferences and trade shows
⤳ purchasing competitors' products
⤳ studying competitors' websites
⤳ setting up Google email alerts
⤳ reading industry-related books, magazines, and websites
⤳ talking to customers about what motivated them to buy your product as opposed to your competitor's product
A competitive analysis grid is a tool for organizing the information a firm collects about its competitors. It can help a firm see how it stacks up against its competitors, provide ideas for markets to pursue, and perhaps most importantly, identify its primary sources of competitive advantage.
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