4-1 Assessing a Company’s Industry Assessing a Company’s Industry and Competitive Environment: and Competitive Environment: The Seven Key Questions to The Seven Key Questions to Answer Answer 1. What are the industry’s business and economic traits? 2. What are the nature and strength of competitive forces? 3. What forces are driving industry change? 4. What market positions do industry rivals occupy? 5. What strategic moves are rivals likely to make next? 6. What are the key factors of competitive success? 7. Does the industry outlook offer good prospects for profitability?
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4-1 Assessing a Company’s Industry and Competitive Environment: The Seven Key Questions to Answer 1.What are the industry’s business and economic traits?
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4-1
Assessing a Company’s Industry and Assessing a Company’s Industry and Competitive Environment: The Seven Competitive Environment: The Seven Key Questions to AnswerKey Questions to Answer
1. What are the industry’s business and economic traits?
2. What are the nature and strength of competitive forces?
3. What forces are driving industry change?
4. What market positions do industry rivals occupy?
5. What strategic moves are rivals likely to make next?
6. What are the key factors of competitive success?
7. Does the industry outlook offer good prospects for profitability?
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1. Identifying the Industry’s 1. Identifying the Industry’s Dominant Economic FeaturesDominant Economic Features
Market size and growth rate
Number of rivals
Scope of competitive rivalry
Pace of technological change
Degree of vertical integration
Need for economies of scale
Learning and experience curve effects
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2. Porter’s Five Forces Model of 2. Porter’s Five Forces Model of CompetitionCompetition
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When Is the BargainingWhen Is the BargainingPower of Buyers Power of Buyers Stronger Stronger ??
Buyers are large and can demand concessions
Buyer switching costs for substitutes are low
The number of buyers is small Buyer demand is weak or declining Buyers are well-informed about sellers’
products, prices, and costs Buyers threaten to
integrate backward
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When Is the CompetitionWhen Is the CompetitionFrom Substitutes From Substitutes Stronger Stronger ??
There are many good substitutes that are readily available
Substitutes are attractively priced
Substitutes have comparable or better quality and performance
End-users have low switching costs
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When Is the Bargaining When Is the Bargaining Power of Suppliers Power of Suppliers Stronger Stronger ??
Industry members incur high switching costs
Needed inputs are in short supply
Supplier provides a differentiated inputthat enhances the quality or performanceof sellers’ products
There are only a few suppliers of a specific input
Some suppliers threaten to integrate forward
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When Is the Threat of Entry When Is the Threat of Entry StrongerStronger ??
Industry growth is rapid and profit potential is high
Incumbents are unwilling or unable to contest a newcomer’s entry efforts
The pool of entry candidates is large
Entry barriers are low
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What Causes Rivalry to Be What Causes Rivalry to Be Stronger Stronger ??
Competing sellers regularly launch fresh actions to boost market standing
Declining demand or slow market growth
The products or services offered by rivals are standardized or weakly differentiated
One or more industry rivals becomes dissatisfied with their market standing
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What Causes Rivalry to Be What Causes Rivalry to Be Stronger Stronger ??
Number of rivals increases
Buyer costs to switch brands are low
Industry conditions tempt rivals use price cuts or other competitive weapons to boost volume
Outsiders have recently acquired weak firms in the industry and are trying to turn them into major market contenders
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When the Five Competitive Forces When the Five Competitive Forces Result in Attractive Market Result in Attractive Market ConditionsConditions
An industry’s competitive environment tends to be attractive from a profit-making standpoint when
Rivalry is moderate
Entry barriers are highand no firm is likely to enter
Good substitutesdo not exist
Suppliers and customers arein a weak bargaining position
thereby producing competitive pressures that are very weak!
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When the Five Competitive Forces When the Five Competitive Forces Result in Unattractive Market Result in Unattractive Market ConditionsConditions
An industry’s competitive environment tends to be unattractive from a profit-making standpoint when
Rivalry is strong
Entry barriers are lowand new competitors are likely to enter
Good substitutes exist
Suppliers and customers arein a strong bargaining position
thereby producing competitive pressures that are very intense or fierce!